Chinese Yuan as Reserve and Trade Currency?

A series of Chinese government policy changes are enabling Asian companies to settle trades with their Chinese counterparts in renminbi, according to Risk.net website. And increased intra-Asian trading volume may lead Beijing to also consider allowing other trade-related insurance and derivatives denominated in renminbi to be done offshore, according to bankers and regulators in Hong Kong.

Although it is still very early, the Chinese move aims for its currency to join the US dollar and EU's Euro as a major trade and reserve currency. A key hurdle that the Chinese need to cross is the full convertibility of the yuan into other major currencies. Beijing is beginning to get around the convertibility issues by signing currency swap agreements with several of its trading partners, including Argentina, Indonesia, India, Japan, Pakistan, Russia and South Korea. The agreement requires that the central banks of the partner countries have adequate deposits of each others’ currencies. These countries will eventually be able to use the Chinese currency for deals between each other.

It has long been recognized that the US dominance in global affairs is at least partly attributable to the US dollar as the world's biggest reserve and trading currency. Nearly two-thirds of the world's central-bank reserves are denominated in US dollars, according to data from the International Monetary Fund. The euro accounts for about a quarter -- up from 18% when it was introduced in 1999, but less than its predecessor currencies' share in 1995. Because the U.S. is such a huge trading partner for so many countries, the reserve buildup isn't easily unwound.



According to the Wall Street Journal, the dollar is also deeply entrenched in world trade. Businesses lower their transaction costs by dealing in a common currency. More than 80% of exports from Indonesia, Thailand and Pakistan are invoiced in dollars, for instance, according to the latest figures available in research by the European Central Bank, although less than a quarter of their exports go to the U.S.

Taking a page from the history of US rise in the last century, the Chinese efforts on currency appear to be only the first part of its larger push to assert its status as a new superpower of the twenty-first century. In a piece interestingly titled "It’s China’s World. We’re Just Living in It" in the latest issue of Newsweek, the authors argue that the Chinese are looking to reshape the world with China at its center. The larger plan includes the creation of a new framework with a new set of international institutions through which the Chinese can exercise their power.

While many nations want to change at least part of their reserve holdings from US dollars to euros or other alternatives, they know if they sell a significant share of their dollar reserves, it would weaken the dollar's value. That would potentially hurt their own trade competitiveness, and push down the value of their remaining dollar reserves. If they keep the dollars, a buildup of unwanted assets would only mount.

Beijing holds $2 trillion in dollar assets, accumulated through years of exports to America and massive purchases of Treasuries by the Chinese government, according to Businessweek. One way they can reduce their exposure to dollar assets over time is to shift their reserves from long-term Treasuries into shorter-term U.S. bonds. That shift would give the Chinese more flexibility in easing away from the dollar. The New York Times reported recently that the Chinese seem to be maintaining dollar-asset ownership levels, but shifting their holdings into maturities of a year or less—something they have not previously done.

"There is no alternative to the dollar as a trading currency in Asia," Andy Xie, a Hong Kong-based economist told the Wall Street Journal last year. "Eventually, the renminbi [yuan] will replace the dollar in Asia, perhaps in our lifetime. But it will take at least 30 to 40 years."

Here's a similar opinion issued recently by Moody's Investor Service on the status of US dollar as global reserve currency:

Recent speculation about the future of the dollar as the world's reserve currency is, in Moody's view, unfounded. Despite the US's external deficits and dollar depreciation, we believe that the likelihood of the dollar losing its prominent role as a reserve currency remains very low for at least the next three to five years: Regardless of the current state of US public finances, the economic and political factors underpinning the dollar's reserve currency status are still aligned in favour of the dollar and are likely to remain so for some time. There are no plausible alternative currencies that are ready to take the US dollar's place as the global reserve currency. We do not consider the Chinese renminbi and the IMF's Special Drawing Right (SDR) to be credible alternatives. Inertia and the interconnectedness of financial markets, not to mention the size of the global market for dollar-denominated debt, highlight the difficulties of a global switch from the dollar to another currency...



As China begins to surpass America as a major trading partner of many of the largest economies, it has growing economic clout in the world. But the key question is: Can the Chinese come up with their version of Bretton Woods—a system of political and economic public goods that have benefited not only the United States, but the key US allies as well? Only time will tell.

When the 20th century began, the U.S. was already the world's biggest economy, but the British pound still accounted for nearly two-thirds of official foreign-exchange reserves held by the world's central banks. The dollar didn't become the dominant currency until after World War II. Even then, some commodities still traded in pounds: The London sugar market didn't jettison sterling for a dollar-denominated trading contract until around 1980. The history lesson here is that, while the reserve and trade currencies can and do change, it takes a significant re-architecture of the world economy and trade and significant amount of time for it to happen.

The signing of currency swap agreements with several of its trading partners, including Argentina, Indonesia, India, Japan, Pakistan, Russia and South Korea, is a good start for China. But it will take many decades for yuan to displace US dollar after China becomes the world's largest economy around 2040.

Here's a video clip of NYU's Professor Nouriel Rubini's prediction on yuan:



Related Links:

China's Checkbook Power

Godfather's Vito Corleone: A Metaphor For Uncle Sam?

The Future of US Dollar as Reserve Currency

Bretton Woods

China's Growing Role in Afghanistan and Kashmir

China Sees Opportunities Where Others See Risk

Chinese Do Good and Do Well in Developing World

Can Chimerica Rescue the World Economy?

Comments

Riaz Haq said…
Here's an interesting commentary by Sudha Ramachandra about India's future prospects:

The populations of Europe and Japan are already graying, and the working-age populations of the United States and China are projected to shrink too in the next two decades. By 2020 the US will be short 17 million people of working age, China 10 million, Japan 9 million and Russia 6 million. However, India will have a surplus of 47 million people, giving the country a competitive edge in labor costs, which will be sustainable up to 2050, according to a study by Goldman Sachs.

Economists say India will catch up with the Chinese economy beginning in 2030, when the latter could cool off as the result of an aging population. "The window of opportunity offered by a population bulge has clearly opened for India," points out noted economist C P Chandrasekhar of Jawaharlal Nehru University in New Delhi. After decades of evoking despair, India's demographic profile is finally beginning to stir hope.

But not everyone views the population bulge with such optimism. Some analysts say it is not enough to have a young population. The working-age population needs to be healthy and literate.

India's score on this, while improving, is certainly not inspiring. About 50% of all Indian children are undernourished, a large percentage of them born with protein deficiency (which affects brain development and learning capacity, among other things). This is hardly the ideal foundation for a productive workforce, as the likelihood of a malnourished child growing up to be an able adult is rather dim.

There is also the question of whether the population has the skills and knowledge to take on India's future work. Literacy has improved dramatically over the years - just 14% of the population was literate in 1947 versus about 64.8% today - but many who are classified as literate can barely read or write. And 40% of those who enroll in primary schools drop out by age 10. The curriculum in the schools, especially the government-run ones, does not prepare the child for the domestic job market, let alone the global one. The huge "workforce" might not be qualified to do the work.

Moreover, India's rich and educated classes are preferring to have small families, so the additions to the population are coming largely from the poor, illiterate sections in society. Nicholas Eberstadt, who researches demographics at the Washington-based American Enterprise Institute, points out that while India's overall population profile will remain relatively youthful, "this is an arithmetic expression averaging diverse components of a vast nation. Closer examination reveals two demographically distinct Indias: the north that stays remarkably young over the next 20 years, and a south already graying rapidly due to low fertility."
Riaz Haq said…
Here are excerpts from a Wall Street Journal report on Chinese Premier Wen Jiabao's visit to New Delhi:

Mr. Wen sought during the visit to strengthen commercial ties with big-ticket investment proposals and a promise to further open China's markets to India.

On Wednesday, Indian and Chinese companies signed more than 40 deals in the power, commodities and telecoms sectors for a combined $16 billion. Many of the deals were Chinese bank financing agreements for large Indian orders of Chinese exports of telecom and power-producing equipment.

During the first 10 months of 2010, China exported goods valued at $32.87 billion to India, but its imports totaled only $17 billion.Mr. Wen reiterated that Beijing will heed New Delhi's request to broaden access of Indian exports such as pharmaceuticals, information technology and agricultural products to shrink India's trade deficit.Mr. Wen also said in his speech to the diplomats that China understands and supports India's desire to play a bigger role at the United Nations, including the Security Council. China has long opposed a permanent seat for India on the council, and Mr. Wen's comments Thursday didn't appear to represent a change to that position. President Barack Obama during a visit to India in November for the first time publicly backed India's inclusion as a permanent member of the Security Council.

India, concerned over its trade deficit of $19 billion last fiscal year, wants better market access for its exports. For now, India's main export to China is iron ore, while it imports large amounts of high-value manufactured goods.

"The two sides agreed to take measures to promote greater Indian exports to China with a view to reduce India's trade deficit," the two countries said in a joint statement.

India-China trade ties have often been rocky, as India continues to impose antidumping duties—the highest by any country at the World Trade Organization last year—against Chinese products, alleging that the prices of some goods are set artificially low.

China has also raised objections to India's stringent regulations in sourcing power and telecommunications equipment, calling them discriminatory.

China and India have shared interests in reform of the council, with both supporting expanded representation of developing countries, Mr. Wen said Thursday.
Riaz Haq said…
Here's Washington on Pak-China currency swap deal:

China announced a currency swap with Pakistan on Saturday in a new step to gradually expand use of its tightly controlled yuan abroad.

Beijing has begun allowing limited use of yuan in trade with Hong Kong and Southeast Asia in a move that could help to boost exports. It has signed swap currency deals with central banks in Thailand, Argentina and some other countries.

The Chinese central bank said it agreed Friday with its Pakistani counterpart to swap 10 billion yuan ($1.6 billion) for 140 billion Pakistani rupees. It said the money would promote investment and trade but gave no details of how it would be used.

Such agreements give central banks access to each other’s currency but commercial banks still need to create systems to issue letters of credit and handle other transactions in those currencies before companies can use them.

The United States and other trading partners complain Beijing’s controls on the yuan keep it undervalued, giving its exporters an unfair price advantage and hurting foreign competitors at a time when the global economy is struggling.

Some American lawmakers are demanding punitive tariffs on Chinese goods if Beijing fails to move more quickly in easing its controls.

Expanded use of the yuan abroad would reduce costs for Chinese traders who do most of their business in dollars and euros. It also might increase the appeal of Chinese goods for foreign buyers who have yuan to spend.

Beijing also has created a market for yuan-denominated bonds in Hong Kong. It said last week that some foreign investors who obtain yuan abroad would be allowed to invest them in China’s stock markets.

The Chinese central bank announced a currency swap agreement with Thailand this week and has carried out swaps with Argentina and Kazakhstan. It has pledged to lend yuan to some other countries’ central banks in case of emergencies.

Chinese leaders say they plan eventually to allow the yuan to trade freely abroad but analysts say it might be decades before that is completed.


http://www.washingtonpost.com/business/china-announces-currency-swap-with-pakistan-in-new-move-to-expand-yuans-use-abroad/2011/12/23/gIQAJ8HlEP_story.html
Riaz Haq said…
China has become Pakistan's largest trading partner, replacing the US which slipped to third place, according to Dawn News:

China has emerged as Pakistan’s largest trading partner replacing the US and is being closely followed by the UAE. The US has slipped to third position on the list of the top ten trading partners.

Germany and the UK occupy eighth and 10th slots respectively and Japan is no more on the ten top list. The latest rankings based on the FY11 statistics indicate that Pakistan is doing much more trade within Asia and its reliance on American and European markets is on the decline.
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Emergence of the new rich in China and expansion in middle-income consumers in the Middle Eastearn countries opened up new opportunities for Pakistan to boost trade with all these nations. Moreover, the trade gravity played its part in redirecting our external trade towards South and East Asia including Malaysia and Indonesia.

Small wonder then, that in the last fiscal year seven out of the top ten largest trading partners of Pakistan were all Asians—China, the UAE, Saudi Arabia, Kuwait, Malaysia, Afghanistan and India. And all of them except Saudi Arabia and India showed an improvement in their respective rankings, in a small span of three years.

“Interestingly whereas recession in the US and troubled political relationship between Islamabad and Washington affected growth of bilateral trade, the surge in the US troops in Kabul aimed at winding up the military operation there increased our exports to Afghanistan,” according to a senior official of Trade Development Authority of Pakistan (TDAP). That explains, at least in part, why Afghanistan’s seventh slot among our largest trading partners in FY11.

Our exports to Kabul totaled $2.3 billion in FY11. This growth trend is continuing and in the first five months of this fiscal year, exports to Afghanistan have touched a billion dollars mark------------
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Business leaders say Pakistan’s top bilateral trade partners are changing not just because of economic miracle of China and overall better average economic growth in Asia than in America and in Europe. “Increase in imports from China, for example, is also related to the Chinese investment projects in Pakistan part of which are scaling down American influence,” said a former president of the Federation of Pakistan Chambers of Commerce and Industry.
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India and China are two of the six countries on the list of the top ten trading partners with whom Pakistan runs trade deficits.
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The other four are the UAE, Saudi Arabia, Kuwait and Malaysia. Whereas Pakistan imports large amounts of costly fuel oil from the first three countries, it runs trade deficit with Malaysia primarily due to huge import bills of palm oil.
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With four countries out of the ten largest trading partners, Pakistan boasts of a trade surplus. These are the US, Afghanistan, Germany and the UK. “Whereas it is easier to retain Afghanistan as a major export market and it is encouraging that Bangladesh has emerged as a billion-dollar market for our products, the US, Germany, the UK and other European countries are equally important for sustained growth in overall exports,” remarked chairman of Pakistan Bedwear Exporters Association Mr. Shabbir Ahmad. He and many other exporters believe that normalisation of political relationship with the US and continuing of efforts to win trade concessions in European Union are required for keeping exports on a high growth trajectory.

http://www.dawn.com/2012/01/16/top-ten-trading-partners.html
Riaz Haq said…
#China's #Yuan joins #US $, #Euro #UK Pound, #Japan's Yen as #IMF Approves its Reserve-Currency status http://bloom.bg/1LIVdXQ via @business

The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the strides China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.

The International Monetary Fund’s executive board, which represents the fund’s 188 member nations, decided the yuan meets the standard of being “freely usable” and will join the dollar, euro, pound and yen in its Special Drawing Rights basket, the organization said Monday in a statement. Approval was expected after IMF Managing Director Christine Lagarde announced Nov. 13 that her staff recommended inclusion, a position she supported.
It’s the first change in the SDR’s currency composition since 1999, when the euro replaced the deutsche mark and French franc. It’s also a milestone in a decades-long ascent toward international credibility for the yuan, which was created after World War II and for years could be used only domestically in the Communist-controlled nation. The IMF reviews the composition of the basket every five years and rejected the yuan during the last review, in 2010, saying it didn’t meet the necessary criteria.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that
have been implemented and will continue to be implemented and is a clear,
stronger representation of the global economy,” Lagarde said Monday during a press briefing at the IMF’s headquarters in Washington. Renminbi is the currency’s official name and means “the people’s currency” in Mandarin; yuan is the unit.
The Chinese Yuan’s Journey to Global Reserve Status: A Timeline
The addition will take effect Oct. 1, 2016, with the yuan having a 10.92 percent weighting in the basket, the IMF said. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound. The dollar currently accounts for 41.9 percent of the basket, while the euro accounts for 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
The yuan weakened in offshore trading Tuesday amid speculation China’s central bank will rein in intervention now that the IMF vote on reserve-currency status is out of the way. The long-term goal is for very few interventions, People’s Bank of China Deputy Governor Yi Gang said at a briefing, adding that bigger two-way fluctuations are normal.

In a preliminary report in July, IMF staff estimated the yuan would have a weight of about 14 percent to 16 percent. The weighting will affect the interest countries pay when they borrow from the IMF. It may also affect the scale of inflows the Chinese currency receives in the coming months.
Monetary System
The decision establishes the yuan as a fixture in the very international monetary system Chinese leaders criticized following the global financial crisis. In a landmark 2009 speech, PBOC Governor Zhou Xiaochuan argued a global system so reliant on a single currency -- the U.S. dollar -- was inherently prone to shocks. That conviction set off a global push by China’s leaders, including now-President Xi Jinping, to have the yuan included in the SDR, which countries can use to supplement their currency reserves.
Riaz Haq said…
#China Creates a World Bank of Its Own, and the #US Balks http://nyti.ms/1XH1gIO

As top leaders met at a lush Bali resort in October 2013, President Xi Jinping of China described his vision for a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia. Under Chinese stewardship, the bank would tackle the slow development in poor countries that was holding the region back from becoming the wealth center of the world.

Afterward, the United States secretary of state, John Kerry, caught up with Mr. Xi in the corridor. “That’s a great idea,” Mr. Kerry said of the bank, according to Chinese and American aides briefed on the encounter.

The enthusiasm didn’t last long, as the Obama administration began a rear-guard battle to minimize the bank’s influence.

The United States worries that China will use the bank to set the global economic agenda on its own terms, forgoing the environmental protections, human rights, anticorruption measures and other governance standards long promoted by its Western counterparts. American officials point to China’s existing record of loans to unstable governments, construction deals for unnecessary infrastructure, and villagers abruptly uprooted with little compensation.

But the administration suffered a humiliating diplomatic defeat last spring when most of its closest allies signed up for the bank, including Britain, Germany, Australia and South Korea. Altogether 57 countries have joined, leaving the United States and Japan on the outside.

The calculation for joining is simple. China, with its vast wealth and resources, now rivals the United States at the global economic table. That was confirmed this week when the International Monetary Fund blessed the Chinese renminbi as one of the world’s elite currencies, alongside the dollar, euro, pound and yen.

Countries are finding they must increasingly operate in China’s orbit. And backing the new bank would bring financial advantages, as well as curry favor with Beijing. While many countries had similar doubts as the United States, they figured they could just shape the organization from the inside.

The new bank “is an instrument for China to lend legitimacy to its international forays and to extend its sphere of economic and political influence even while changing the rules of the game,” said Eswar Prasad, former head of the China division at the International Monetary Fund and a professor at Cornell University. “And it gives the existing institutions a kick in the pants.”
Riaz Haq said…
#China Creates a World Bank of Its Own, and the #US Balks http://nyti.ms/1XH1gIO Contd

The Chinese-led institution, the Asian Infrastructure Investment Bank, is now in the process of picking its first projects. The choices, expected to be announced in coming months, will provide insight into how China plans to wield its power.

Either China is serious about taking a leadership role in the global economy and prioritizing projects that broadly benefit Asia, or it plans to use the bank as a conduit to further its own ambitions.

So far, China appears to be navigating the two extremes. It is assuaging critics by compromising on issues like board makeup, project oversight and procurement. But China is hardly yielding control, raising concerns about where the bank will land on issues like climate change and labor rights. The bank, for example, is still weighing whether to approve coal-fired power plants.

China is taking direct aim at the current development regime, the Bretton Woods system established under the leadership of the United States after World War II to help stabilize currencies and promote growth.

Beijing officials say they want to take a faster approach than their counterparts at the World Bank, the International Monetary Fund and the Asian Development Bank. The new bank, China promises, will not be bogged down in oversight.

The Chinese-led bank will also focus solely on infrastructure. To China, the World Bank and the Asian Development Bank failed to deliver on big projects meant to transform backward parts of Asia, resulting in an estimated $8 trillion of needed investment in rails, ports and power plants.

As a complement to the new bank, China is rolling out the “One Belt, One Road” program for the construction of a network of roads, rails and pipelines along the old Silk Road route through Central Asia to Europe. A maritime equivalent calls ports from Southeast Asia to East Africa to the Mediterranean.

“The U.S. risks forfeiting its international relevance while stuck in its domestic political quagmire,” Jin Liqun, the president-designate of China’s bank, wrote in a chapter for a recently released book, “Bretton Woods: The Next 70 Years.” He added, in reference to the United States, “History has never set any precedent that an empire is capable of governing the world forever.”

At the signing of the agreement for the bank in June, Mr. Jin and Mr. Xi posed for a photo alongside officials from the other 56 founding member nations in the Great Hall of the People.

An unexpectedly large group, it included countries as diverse as Iran and Israel, Russia and Poland, and an array of American friends. The total capital commitment, $100 billion, was double the amount originally envisioned.

Having underestimated the interest, the Obama administration is now starting to soften its stance. Three months after the signing, Mr. Xi met with President Obama at the White House, in the Chinese leader’s first state visit. At the summit meeting, Mr. Obama urged the existing banks to cooperate with the new institution. The United States, though, would still not join.
Riaz Haq said…
#Pakistan, #China to trade in own currencies rupee and renminbi, not #US dollars or #Euro. #CPEC

http://tribune.com.pk/story/1220159/bilateral-commerce-pakistan-china-trade-local-currencies/

Standard Chartered has taken the lead in conducting a roadshow in Pakistan to inform businessmen that hurdles to trade with China in local currencies – Pakistani rupee and Chinese renminbi – have been razed.

Until now, the two countries were trading in dollars, which caused hurdles in the way of banking transactions for traders. The two nations signed a currency swap agreement a couple of years ago.

Standard Chartered Pakistan Chief Executive Officer Shazad Dada said they had a very fruitful meeting with the State Bank of Pakistan on Thursday morning. The central bankers pledged to facilitate trade in the two currencies.

The roadshow is held at a time when most banks in the two nations have yet to set up their branches in each other’s countries. However, Standard Chartered has branches in both the countries.

The roadshow is part of an international series, as the Greater China Region’s Standard Chartered has conducted similar shows in the Middle East and Africa in recent days.

China is now in agreement with eight countries to conduct trade in their local currencies. These include Pakistan, Hong Kong, the UAE and Qatar.

China has been conducting roadshows since its official currency renminbi was included in the IMF’s Special Drawing Rights (SDR) list of global currencies, effective from October 1, 2016. The IMF lends in SDR denomination to nations across the world.

This coincided with China’s on-going investment worth $46 billion in Pakistan under the China-Pakistan Economic Corridor (CPEC).

Carmen Ling, the bank’s delegation lead to Pakistan and Managing Director, said the infrastructure had been laid to begin trade in local currencies. “Now, it all depends on how fast the requisite information is disseminated to businessmen.”

More than 60% of Standard Chartered’s market across Africa, Asia and the Middle East stand to benefit from the initiative. Twenty-five of the group’s 72 markets are in Africa and the Middle East.

The initiative could facilitate financing for Pakistan’s key infrastructure projects, while encouraging cross-border economic and trade partnerships, not only with China, but also with those markets positioned along the initiative, she added.


Riaz Haq said…
President #Trump: Replace The US $ With #Gold As The Global Currency To Make #America Great Again via @forbes

https://www.forbes.com/sites/ralphbenko/2017/02/25/president-trump-replace-the-dollar-with-gold-as-the-global-currency-to-make-america-great-again/#5936ed0a4d54

Inside President Trump’s otherwise “standard Trump stump speech” at CPAC was nestled what might be a most intriguing observation:

Global cooperation, dealing with other countries, getting along with other countries is good, it’s very important. But there is no such thing as a global anthem, a global currency or a global flag. This is the United States of America that I’m representing.

There's a keen insight in there that could, just maybe, transform our lives, America, and the world. No "global currency?" Was this, with the poetic observation that “there is no such thing as a global anthem…or a global flag,” just a trope? Or could it contain a political portent with potential high impact on world financial markets? Let’s drill down.

As it happens, there is a global currency.

It’s called the "U.S. dollar.”

Most international trade is priced in dollars. The Bretton Woods international monetary system invested the dollar, which then was defined as and (internationally) was legally convertible to gold at $35/oz, with global currency status. France’s then-finance minister, later its president, Valéry Giscard d'Estaing, called the “reserve currency” status of the dollar -- its status, along with gold, as global currency -- an “exorbitant privilege.”

By this d'Estaing was alluding to the fact, as summarized at Wikipedia, that "As American economist Barry Eichengreen summarized: 'It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one.'" That privilege, which made great sense during the period immediately after World War II, became a curse.

In 1971 President Nixon, under the influence of his Svengali-like Treasury Secretary John Connally, "suspend[ed] temporarily the convertibility of the dollar into gold." That closure proved durable instead of temporary. The dollar became, and remains, the world's global currency.

What had been an “exorbitant privilege” devolved into an exorbitant liability. As my former professional colleague John D. Mueller, of the Ethics and Public Policy Center, formerly Rep. Jack Kemp's chief economist, writing in the Wall Street Journal in Trump's Real Trade Problem Is Money recently and astutely observed:

a monetary system based on a reserve currency is unsustainable, since foreign official dollar reserves (for example) are acquired and must be repaid in goods. In other words, the increase in official dollar reserves equals the net exports of the rest of the world, which means it must also equal U.S. international payments deficits—an unsustainable situation.

In other words, if President Trump wishes to address America’s merchandise trade deficit (balanced to perfection, of course, by a capital accounts surplus) he will find that allowing the dollar to be used as the global currency is the real snake in the economic woodpile. The dollar’s burden as the international reserve currency, not currency manipulation by our trading partners or bad treaties, is the true villain in the ongoing melodrama of crummy job creation.
Riaz Haq said…
Germany calls for global payments system free of US
Foreign minister seeks European autonomy on issues like Iran


https://www.ft.com/content/23ca2986-a569-11e8-8ecf-a7ae1beff35b


German foreign minister Heiko Maas
Germany’s foreign minister has called for the creation of a new payments system independent of the US as a means of rescuing the nuclear deal between Iran and the west that Donald Trump withdrew from in May.

Writing in the German daily Handelsblatt, Heiko Maas said Europe should not allow the US to act “over our heads and at our expense”.

“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.

Mr Maas’s intervention was the “strongest call yet for EU financial and monetary autonomy vis-à-vis US,” said Thorsten Benner, director of the Global Public Policy Institute, a Berlin-based think-tank.

The foreign minister’s article highlights the depth of the dilemma facing European politicians as they struggle to keep the Iran deal alive while coping with the fallout of US sanctions imposed by Mr Trump against companies doing business with Tehran.

The EU has committed itself to the agreement and has vowed to protect European businesses from punitive measures adopted by Washington. But that has failed to convince EU companies, who are more interested in maintaining their access to the lucrative US market than in the more modest opportunities presented by Iran.

Last month Washington rebuffed a high-level European plea to exempt crucial industries from sanctions. Mike Pompeo, US secretary of state, and Steven Mnuchin, Treasury secretary, formally rejected an appeal for carve-outs in finance, energy and healthcare made by ministers from Germany, France, the UK and the EU.

[Europe must] form a counterweight when the US crosses red lines

Heiko Maas, German foreign minister
On Monday, Total, France’s largest energy company, announced it was pulling out of a big Iranian gas project, after admitting it might be affected by threatened US measures against Iran’s oil and gas industry.

Swift, a Belgium-based global payment system that facilitates many of the world’s cross-border transactions, is also affected. Unless it wins an exemption from sanctions, it will be required by the US to cut off targeted Iranian banks from its network by early November or face possible countermeasures against both its board members and the financial institutions that employ them.

These could include asset freezes and US travel bans for the individuals, and restrictions on banks’ ability to do business in the US.

Mr Maas’s words Handelsblatt come with relations between Germany and the US in their worst state for decades. Mr Trump has chastised Berlin over its large trade surplus, its relatively low military spending and its support for Nord Stream 2, a new gas pipeline that will bring Russian gas directly to Germany.

Meanwhile, Berlin has looked on in dismay as Mr Trump has withdrawn the US from the Iran deal and the Paris climate treaty, imposed import tariffs on EU steel and aluminium and appeared to question America’s commitment to Nato.

Mr Maas said it was vital for Europe to stick with the Iran deal. “Every day the agreement continues to exist is better than the highly explosive crisis that otherwise threatens the Middle East,” he said.

He also called for the creation of a “balanced partnership” with the US in which the Europeans filled the gaps left where the US withdrew from the world. Europe must, he said, “form a counterweight when the US crosses red lines”.
Riaz Haq said…
#US #Dollar is dominant #international #trade #currency, with a 51.9% share of value of international settlements/transactions, followed by #euro with 30.5%, #British pound with 5.4% and the rest is in #Asian currencies such as #Japanese #yen and #Chinese #yuan. Source: SWIFT


Worldwide Currency Usage and Trends
Information paper prepared by SWIFT in collaboration with City of London and Paris EUROPLACE
December 2015


This paper analyses a range of previously unpublished SWIFT messaging flows to address key questions on how currency usage in global payments is changing, namely:
— What are the top currencies used in international trade?
— What is the UK’s role in currency flows between Europe, Asia-Pacific and the Americas?
— What are the major currency flows with Europe, excluding the UK?
— What are the drivers or incentives determining the use of a particular currency?
— Are there regions or countries where the use of local currencies could grow?
The US dollar prevails as the dominant international trade currency, with a 51.9% share of the value
of international currency usage in 2014. The euro is second, with a 30.5% share of the total value. The British pound is third, with a 5.4% share of
the total value, followed by Asian currencies such
as the Japanese yen and the Chinese yuan. While accounting for a relatively small proportion of worldwide international currency usage, the Chinese yuan (CNY) or renminbi (RMB), is nonetheless experiencing a stellar ascension, as evidenced by the SWIFT monthly RMB Tracker3. At the time of writing this paper, SWIFT data shows the RMB is currently ranked fifth for Asia-Pacific inflows and outflows with Europe, excluding the UK4.
The analysis of current financial flows (bank-to- bank flows) does not fully reflect the global reach of commercial flows (customer-to-customer flows). Many import and export settlements involve intermediation by banks that are based
in established financial centres. As such, the importance of US dollar clearing banks in the United States, reflecting the prevalence of the US dollar in international trade, and the importance of
the UK as a payments intermediary for euro flows, continues to be reflected in SWIFT statistics.
Looking at financial flows in value, the UK is the main correspondent country within Europe for Americas and Asia-Pacific, regardless of the currency. UK financial institutions process more than 50% of all European inflows and outflows with the Americas and Asia-Pacific.
For commercial flows denominated in the euro or in Chinese yuan, UK-based banks also play a significant role, intermediating flows to and from Europe.
The British pound’s ranking in third position, and the scale of its usage on a worldwide basis, is reflective of the UK and specifically London’s role as a centre of financial market activity. However, for financial flows where the UK is not involved, the British pound’s share is very small. In contrast, for euro financial flows that take place outside
of the Eurozone, the euro’s share compared to other currencies is more significant. This highlights the geographical spread of euro-denominated payments.
The Chinese yuan’s usage continues to grow significantly, particularly in flows between Europe and Asia-Pacific, which have increased considerably over the last two years, and where the currency is now ranked fifth. The People’s Bank of China (PBOC) demonstrates a strong commitment to promoting the internationalisation of the Chinese yuan, and the Chinese government has implemented a range of supportive policy measures.
In contrast, the European Central Bank (ECB)
has not pursued the same internationalisation
strategy with the euro. Its focus has been on
regional stability rather than expanding the euro’s
international commercial usage, as noted in the
ECB’s July 2015 report ‘The international role of the
5 euro’ .
Riaz Haq said…
Economist Larry Summers: "Europe's a museum, Japan's a nursing home and China's a jail"

https://www.thenationalnews.com/opinion/comment/amid-preparations-for-nato-s-70th-anniversary-summit-no-one-seems-sure-about-where-europe-should-be-heading-1.943079

Consider the comment last week by Larry Summers, a former US treasury secretary and president of Harvard University. Mr Summers took part in a simulation of the White House situation room, carried out by Harvard's Kennedy School of Government. The make-believe situation discussed was dual national security crises which were as follows: the test of a North Korean missile that could potentially reach the US, and a Chinese digital currency that has dulled the effectiveness of the main US tool for responding to such provocations – that is, economic sanctions. Mr Summers was dismissive of the idea that a rival currency could replace the dollar, saying: "Europe's a museum, Japan's a nursing home and China's a jail".

The perception of Europe as a “museum” – a passive, possibly slightly musty institution that conserves and showcases cultural curiosities – is only slightly worse than the way the bloc was recently summed up by French President Emmanuel Macron. He said: “Europe has forgotten that it is a community by increasingly thinking of itself as a market.” It was a rather despairing comment from the politician who has strongly positioning himself to assume leadership of Europe now that Berlin is in a state of political paralysis, with German Chancellor Angela Merkel ending nearly two decades at the helm of her country and of the European bloc.
Riaz Haq said…
China looks to take its digital currency global

https://www.axios.com/china-central-bank-digital-currency-global-3268579f-bc4b-4a0e-82d8-004a1cd633e2.html

China appears to have taken another major step in its quest to move the world away from the dollar and position itself as a major power in the world's financial markets.

What happened: China's central bank has set up a partnership with SWIFT, the global system for cross-border payments, through its digital currency research institute and clearing center.

Why it matters: The move has sparked "speculation over the central bank's pursuit of promoting the global use of its digital currency," China's state-operated Global Times wrote on Thursday.

The big picture: China is far ahead of the U.S. in the development of a central bank-backed digital currency and as such could be far ahead in the future of global payments and financial settlement.

If China can cement the yuan as the world's favored digital currency, it could displace the dollar and provide China with the immense global privileges that have been enjoyed by the U.S. since the end of World War II.
Be smart: The lack of financial transactions in and broad use of its currency is the greatest detriment to China amassing global power.

The country has been opening up its financial markets and now has mainland stocks listed on top international exchanges like MSCI and its government bonds have been added to the global benchmark Bloomberg and JPMorgan bond indexes.
In 2020, China drew double the amount of foreign capital to its yuan-denominated government bonds as the year before.
On the other side: The ability of the U.S. to borrow money at will in international debt markets and to impose sanctions on countries it sees as hostile are both largely dependent on the dollar's status as the world's funding currency.

The use of the SWIFT system is a major conduit to imposing sanctions.
Where it stands: Federal Reserve governor Lael Brainard said in a speech in August that the Fed was working to build and test a "hypothetical" central bank digital currency, noting that CBDCs "present opportunities but also risks associated with privacy, illicit activity, and financial stability."

European Central Bank president Christine Lagarde was similarly ambivalent about the development of a CBDC in January, saying it was "going to take a good chunk of time to make sure it's safe," adding, "I would hope that it's no more than five (years)."
China has already rolled out tests of its digital yuan in several Chinese cities, testing payments with real customers in real stores.
Yes, but: Axios China author Bethany Allen-Ebrahimian points out that having the first-mover advantage isn’t necessarily an advantage in implementing digital currencies because technologies are changing so rapidly.
Riaz Haq said…
#America’s Perpetual War. #US doesn’t just bomb its enemies. It chokes them by using US$, global reserve currency, to enforce its own sanctions to punish them. Search for alternative to US$ is accelerating. It’ll be hard for #Americans to live beyond means https://www.nytimes.com/2021/02/15/opinion/us-sanctions.html


"by deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."

“It is past time,” Joe Biden pledged last year, “to end the forever wars.” He’s right. But his definition of war is too narrow.

For decades, the United States has supplemented its missile strikes and Special Operations raids with a less visible instrument of coercion and death. America blockades weaker adversaries, choking off their trade with the outside world. It’s the modern equivalent of surrounding a city and trying to starve it into submission. Wonks call this weapon “secondary sanctions.” The more accurate term would be “siege.”

America launched its first post-Cold War siege in 1990, after Saddam Hussein invaded Kuwait. For the next 13 years, Iraq — which before the war had imported roughly 70 percent of its food and medicine — needed United Nations approval to legally import anything. Claiming that everything from water tankers to dental equipment to antibiotics might have military use, Washington used its muscle at the U.N. to radically restrict what Iraq could buy. In her book, “Invisible War,” the Loyola University professor Joy Gordon notes that between 1996 and 2003, Iraq legally imported only $204 per person in goods per year — half of the per capita income of Haiti. After resigning to protest sanctions in 1998, the U.N.’s humanitarian coordinator in Iraq, Denis Halliday, warned, “We are in the process of destroying an entire society.”

The U.N. ended its blockade of Iraq when the United States invaded in 2003. Since then, Washington has often claimed to employ “targeted” sanctions, which restrict arms sales or penalize only specific officials or companies, not entire populations. And in some instances, the sanctions are indeed targeted. But in the case of a few select foes — Iran, Venezuela, North Korea, Cuba and Syria — the United States has initiated or intensified sieges that contribute to the same kind of misery experienced in Iraq.
SQ said…
US$ as reserve currency and ...... the World Bank, IMF, FATF, Amnesty, INGOs, Media, Hollywood and an army of think tanks.
Riaz Haq said…
SQ: "US$ as reserve currency and ...... the World Bank, IMF, FATF, Amnesty, INGOs, Media, Hollywood and an army of think tanks"


A key tool used by the US is SWIFT, the System for Worldwide Financial Transactions, to enforce its will. Banks use SWIFT to send/receive funds for imports and exports. A country whose banks are cut off from SWIFT ca not conduct international trade. Examples: Iran and North Korea are not connected to SWIFT.Here's a news item from 2018:

WASHINGTON (Reuters) - The Belgium-based SWIFT financial messaging service said on Monday it is suspending some unspecified Iranian banks’ access to its messaging system in the interest of the stability and integrity of the global financial system.

In a brief statement, SWIFT made no mention of U.S. sanctions coming back into effect on some Iranian financial institutions on Monday as part of U.S. President Donald Trump’s effort to force Iran to curtail its nuclear, missile and regional activities.

The SWIFT statement said suspending the Iranian banks access to the messaging system was a “regrettable” step but was “taken in the interest of the stability and integrity of the wider global financial system.”

Having abandoned the 2015 Iran nuclear deal, Trump is trying to cripple Iran’s oil-dependent economy and force Tehran to quash not only its nuclear ambitions and its ballistic missile program but its support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East.


SWIFT’s decision not to mention the resumption of U.S. sanctions likely reflects the fact that it is caught between two contrary regulatory demands.

The U.S. government has told SWIFT that it is expected to comply with U.S. sanctions and it could face U.S. sanctions if it fails to do so. On the other hand, SWIFT is barred from doing so under the European Union’s so-called blocking statute, which could subject it to European penalties for complying with U.S. law.

https://www.reuters.com/article/us-usa-iran-sanctions-swift/swift-says-suspending-some-iranian-banks-access-to-messaging-system-idUSKCN1NA1PN
Riaz Haq said…
#India's Top Cement Maker Paying for #Russian #Coal in #Chinese #Yuan. India tried setting up an #INR payment mechanism for #trade with Russia, but that has not materialized. Chinese businesses have used the yuan in trade settlements with Russia for years https://money.usnews.com/investing/news/articles/2022-06-29/exclusive-indias-top-cement-maker-paying-for-russian-coal-in-chinese-yuan

India's biggest cement producer, UltraTech Cement, is importing a cargo of Russian coal and paying using Chinese yuan, according to an Indian customs document reviewed by Reuters, a rare payment method that traders say could become more common.

UltraTech is bringing in 157,000 tonnes of coal from Russian producer SUEK that loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino, the document showed. It cites an invoice dated June 5 that values the cargo at 172,652,900 yuan ($25.81 million).

Two trade sources familiar with the matter said the cargo's sale was arranged by SUEK's Dubai-based unit, adding that other companies have also placed orders for Russian coal using yuan payments.

The increasing use of the yuan to settle payments could help insulate Moscow from the effects of western sanctions imposed on Russia over its invasion of Ukraine and bolster Beijing's push to further internationalise the currency and chip away at the dominance of the U.S. dollar in global trade.

The sources declined to be identified as they are not authorized to speak to the media. UltraTech and SUEK did not respond to a request seeking comment.

"This move is significant. I have never heard any Indian entity paying in yuan for international trade in the last 25 years of my career. This is basically circumventing the USD (U.S. dollar)," a Singapore-based currency trader said.

The sale highlights how India has maintained trade ties with Russia for commodities such as oil and coal despite the western sanctions. India has longstanding political and security ties with Russia and has refrained from condemning the attack in Ukraine, which Russia says is a "special military operation".

It was not immediately clear which bank opened a letter of credit for UltraTech and how the transaction with SUEK was executed. SUEK did not respond to a request seeking comment.

India has explored setting up a rupee payment mechanism for trade with Russia, but that has not materialized. Chinese businesses have used the yuan in trade settlements with Russia for years.

For Indian trade settlements using the yuan, lenders would potentially have to send dollars to branches in China or Hong Kong, or Chinese banks they have tie-ups with, in exchange for yuan to settle the trade, two senior Indian bankers said.

"If the rupee-yuan-rouble route turns out to be favourable, the businesses have every reason and incentive to switch over. This is likely to happen more," said Subash Chandra Garg, a former economic affairs secretary at India's finance ministry.

India's bilateral trade with China, for which companies largely pay in dollars, has flourished even after a deadly military clash between the two in 2020, though New Delhi has increased scrutiny on Chinese investments and imports, and banned some mobile apps over security concerns.

An Indian government official familiar with the matter said the government was aware of payments in yuan.

"The use of the yuan to settle payments for imports from countries other than China was rare until now, and could increase due to sanctions on Russia," the official said.

---
Business units of Russian coal traders in Dubai have become active hubs for facilitating deals with India in the recent weeks, as Singapore has grown wary of provoking western nations that invoked sanctions against Russia, said multiple coal traders based in Russia, Singapore, India and Dubai.
Riaz Haq said…
#Pakistan seeks change to #US world finance control as #Cuba leads #UN bloc. Pak Ambassador Munir Akram: "many other countries, including its allies and friends, are not happy with that (having US$ dominate world #trade and #finance)" #Dollar https://www.newsweek.com/pakistan-seeks-change-us-world-finance-control-cuba-leads-un-bloc-1773464

Pakistan's envoy to the United Nations has expressed the need to establish alternatives to the current U.S.-dominated global financial system as he handed over the chair of a massive bloc of developing nations to Cuba.

Speaking to a small group of journalists ahead of the Group of 77, or G77, handover ceremony on Thursday, Pakistani ambassador to the U.N. Munir Akram asserted that, "as far as global governance is concerned, the greatest structural issue is the control of the international financial system by the United States."

He said "many other countries, including its allies and friends, are not happy with that," though Washington's position reflected the reality that "the United States is the dominant financial power in the world, and this will not change in the near future."

"But efforts to democratize the international financial architecture will be made," Akram said. "They should be made."

Asked by Newsweek to expand on the direction of these initiatives, the senior Pakistani diplomat pointed to the quota system instituted by the International Monetary Fund (IMF), which is based on economic status, prioritizing wealthier, mostly Western countries, while leaving poorer nations with the least say in how money is distributed.

He also called for reform in how sovereign debt is handled and for the U.S.-led World Bank to overhaul the borrowing system, using its preeminent credit rating to borrow on behalf of developing nations that would then be loaned the money.

"These are just a few issues that need to be addressed in order to change the international financial architecture," Akram said. "Whether we get there? It's a difficult issue. Obviously there are countries whose interests do not want that."

But as he prepared to conclude Pakistan's tenure as G77 chair along with leadership of an array of projects on issues such as fighting poverty, combating climate change and closing the technology gap for developing nations, he placed his confidence in Cuba to lead the way.

"I'm sure that they will have a plan of action. I think the objectives are clear and common," Akram said. "As such, it may be expected that they will push hard for a realization of some of the objectives."

Cuban Foreign Minister Bruno Rodríguez Parrilla outlined this plan of action hours later, addressing the U.N. group that has expanded to some 134 nations since its initial founding by non-aligned states amid the Cold War nearly six decades ago. Those present included representatives of the majority of nations spanning Asia, Africa and Latin America, with China holding a unique position as the world's second largest economy, leading the group to often be referred to as "the G77 and China."

"The great challenges imposed by the current economic order on the developing world have hit their highest point during these times of systematic crises," Rodríguez Parrilla said, "namely health, climate, energy, food and economic crises; escalation of geo-political tensions and renewed forms of domination and hegemony."

Among the issues that he argued still needed to be addressed by the international community were "unequal access to vaccines, the digital gap, the burden of the foreign debt, the structural reform of the international financial architecture, development financing flows, food insecurity, restrictive trade measures, climate financing and capacity building."

Riaz Haq said…
#Pakistan seeks change to #US world finance control as #Cuba leads #UN bloc. Pak Ambassador Munir Akram: "many other countries, including its allies and friends, are not happy with that (having US$ dominate world #trade and #finance)" #Dollar https://www.newsweek.com/pakistan-seeks-change-us-world-finance-control-cuba-leads-un-bloc-1773464

On the issue of restrictive trade measures, he argued that "more than 30 measures and systems of unilateral coercive measures against developing countries continue to be fully implemented," a trend he argued is "far from reversing" and "has exacerbated during the last few years."

Cuba has been subject to one of the world's longest-running sanction campaigns mounted by the U.S. While Washington has regularly been condemned by a near-unanimous consensus of the international community over these measures, America's leading role in the global financial network has generated caution among those potentially seeking to do business with the Communist-led island.

Western sanctions have had a similar effect on a number of other nations represented in the G77 and present at Thursday's gathering, including Iran, Myanmar, North Korea, Syria, Venezuela and Zimbabwe. The vast majority of these measures have come in response to allegations of human rights abuses and authoritarian policies.

Cuba's top diplomat vowed to pursue the G77 and China agenda "in a flexible and always constructive way, based on the broadest possible consensus, in order to implement the transformative vision defended by our Group." He asserted that "it will be our priority to foster international solidarity and cooperation in support of the post-pandemic recovery of our nations."

And Rodríguez Parrilla promised to establish a range of cooperative projects among nations in the Global South for health, biotechnology and education, three fields in which Cuba has ranked among the highest in the developing world, among other areas.

He also promised to challenge the most influential and wealthiest nations on the matter of global responsibilities.

"We will face any attempt to put on our shoulders the burden of unfulfilled promises by the most powerful nations, which allocate millions to the weapons manufacturing, not to development," he said. "We will promote tangible commitments in terms of financing under favorable conditions and capacity building for the countries of the South."

While U.S. President Joe Biden has yet to show any signs of easing sanctions on Cuba, a move partially pursued by the U.S. when he served as vice president to President Barack Obama only to be reversed by President Donald Trump, the current administration has acknowledged calls for reform.

Addressing Pakistan's push for changes to the International Monetary Fund quota regime, State Department spokesperson Ned Price deferred reporters to the Washington, D.C.-based global financial institution during a press briefing Thursday. He did state, however, that "we, of course, want to see Pakistan continue down the path of reform."

"We want to be a partner," Price said. "We will continue to be a partner to Pakistan when it comes to all of their priorities, whether it's security, whether it's economic in this case, or humanitarian in the case of the provision of the additional funding for the flood relief today."

U.S. Secretary of State Antony Blinken also weighed in last week on calls for debt reform for African nations on the heels of the U.S.-Africa Leaders' Summit.

"This is a subject, a theme that we've heard loudly and clearly here," Blinken said. "It's not new in the sense that this has been part of the conversation for some time. And there is no doubt that the rise of unsustainable debt burdens, especially in Africa, is a tremendous challenge, and it's one that we're committed to addressing."

Riaz Haq said…
#Pakistan seeks change to #US world finance control as #Cuba leads #UN bloc. Pak Ambassador Munir Akram: "many other countries, including its allies and friends, are not happy with that (having US$ dominate world #trade and #finance)" #Dollar https://www.newsweek.com/pakistan-seeks-change-us-world-finance-control-cuba-leads-un-bloc-1773464

"When you look at the debt crises that we've seen, they're devastating from a humanitarian standpoint, and they can be debilitating when it comes to effective economic development and inclusive growth," he added. "So, there are a number of things that we talked about and that we clearly need to move forward."

Among these steps Blinken highlighted was mobilizing both national and private sector creditors from other countries, as "it can't just be the United States." He said the U.S. was already supporting this through multinational platforms such as the Group of 20, or G20, a body comprising the world's top 20 economies and the European Union, and the Paris Club, which consists of 22 major creditor countries.

But another "concern" expressed by Blinken was "the growth of untransparent debt, including off-balance-sheet debt and debt that's hidden by non-disclosure agreements" drafted by other companies and countries. Though Blinken did not reference China by name, he and other U.S. officials have often accused Beijing of pursuing such practices in Africa and other parts of the developing world to China's own benefit.

Chinese Foreign Minister Qin Gang disputed the so-called "debt trap diplomacy" argument during a conference held Wednesday alongside African Union Commission Chair Moussa Faki Mahamat.

"The so-called China's 'debt trap' in Africa is a narrative trap imposed on China and Africa," Qin was cited by the Chinese Foreign Ministry as saying. "Projects and cooperation carried out by China in Africa contributed to Africa's development and the improvement of people's lives. The African people have the biggest say in this."

"China will continue to respect the will of the African people, and bring tangible benefits to the African people through China-Africa cooperation based on the realities in Africa," he added, "so as to achieve better common development."


Qin, who served as China's ambassador to the U.S. before his promotion was announced late last month, also argued that "Africa's debt problem is essentially an issue of development."

"The solution to the problem requires addressing not only the symptoms but also the root causes by means of debt treatment, among others, so as to enhance Africa's independent and sustainable development capacity," he added. "China's financing cooperation with Africa is mainly in fields such as infrastructure development and production capacity, with a view to enhancing Africa's capacity for independent and sustainable development."
Riaz Haq said…
Money and Empire: Charles P. Kindleberger and the Dollar System

By Perry Mehrling

https://www.bu.edu/gdp/2022/11/08/money-and-empire-charles-p-kindleberger-and-the-dollar-system/

Charles P. Kindleberger ranks as one of the 20th century’s best known and most influential international economists. A professor of International Economics at the Massachusetts Institute of Technology (MIT) from 1948-1976, he taught cosmopolitanism to a world riven with nationalist instinct. He worked to relieve the fears of his fellow citizens through education, thinking that if people understood how the dollar system worked, they would stop trying to destroy it. His research at the New York Federal Reserve and Bank for International Settlements during the Great Depression, his wartime intelligence work and his role in administering the Marshall Plan gave him deep insight into how the international financial system really operated.

In the new book, “Money and Empire: Charles P. Kindleberger and the Dollar System,” Perry Mehrling traces the evolution of Kindleberger’s thinking in the context of a “key-currency” approach to the rise of the dollar system, which he argues is an indispensable framework for global economic development in the post-World War II era. The overall arc of the book follows the transformation of the dollar system, as seen through the eyes of Kindleberger.

The book charts Kindleberger’s intellectual formation and his evolution as an international economist and historical economist. As a biography of both the dollar and Kindleberger, this book is also the story of the development of ideas about how money works. In telling this story, Mehrling ultimately sheds light on the underlying economic forces and political obstacles shaping a globalized world.

Riaz Haq said…
Arif Rafiq
@ArifCRafiq
“The only reason that America can run the deficits that it does is because the dollar is the global reserve…As we move to a more multipolar financial system, it will be tougher for the US to run big debts.”

https://twitter.com/ArifCRafiq/status/1635273905085755394?s=20


---------

Why Biden is wise to reduce the deficit
Progressives are a bit too sanguine about debt levels

https://www.ft.com/content/c99ba51b-3aac-40a4-b393-6fb5f56ba71b?accessToken=zwAAAYbd2YfskdPJm6UbOqxApNOzk2-19WunGw.MEYCIQCCWJNNpPoerDjz7p_Y9x4y84NXf0IUSjKSTsXDvO1oawIhANNWwOfAu6qzrJoQwB_-oLVB6UtFl_Is9oh6YRp1V-T0&segmentId=e95a9ae7-622c-6235-5f87-51e412b47e97&shareType=enterprise

by Raana Foroohar





Anyway, although we all know that tax cuts and trickle-down economics haven’t created more broadly shared prosperity, I’ve long thought that progressives were a bit too sanguine about debt levels. Let’s say, just for argument’s sake, that a mild recession produced a 20 per cent decline in tax receipts over the next year or two, which is not an unusual outcome during a down cycle, according to one of my favourite market analysts, Luke Gromen, who wrote about the topic recently in an issue of his newsletter, The Forest for the Trees. Let’s also assume a 4.5 per cent interest rate on federal debt (which may be a conservative estimate if the Fed keeps hiking), and a 12 per cent increase in entitlement payouts (also conservative given the number of ageing Americans). Taking those figures, Gromen shows that the interest expense of government debt would go back to the Covid crisis peaks that resulted in a “crash” in the UST market, and subsequently pushed the Fed into more quantitative easing.

I’m not saying this is about to happen. But I am saying that it’s a tricky time in the economy, with the end of cheap money, cheap labour and cheap energy, and that makes it a potentially dangerous time for any country or company holding much debt. The failure of Silicon Valley Bank and the subsequent dominoes now falling has reminded us that there is plenty of hidden risk in the system at the moment.


------



The only reason that America can run the deficits that it does is because the dollar is the global reserve. That won’t change immediately, but I do believe that the balance of global reserves will change significantly over time, in part because energy autocrats have seen dollar reserves weaponised since the war in Ukraine. As we move to a more multipolar financial system, it will be tougher for the US to run big debts. We will eventually have to come back to the kind of guns and butter debates about spending that we stopped having from the late 1970s onwards. For this reason, I think it’s wise for the Biden administration to show it cares about debt. Ed, would you agree, and how will it play politically?

---------


Edward Luce Responds:




Will the resulting deficits endanger the US dollar? I don’t see much sign of that. The US dollar has accounted for around 60 per cent of global central bank reserves for the last couple of decades and that share has barely shifted. Countries without reserve currencies run budget deficits of 5 per cent of GDP without the sky falling on their heads. The key is to ensure that US trend growth is higher than interest rates on federal debt in order to hold it at stable levels. If that proves impossible, then the greenback could lose its throne. Even were Armageddon to strike, however, Art Laffer would still be available for power point presentations on his magical curve.
Riaz Haq said…
Genevieve Roch-Decter, CFA
@GRDecter
Chinese Yuan overtakes US dollar as most-used currency in China's cross-border transactions for the first time in history.

Yuan-share rose to a record high of 48%, UP from nearly zero in 2010.

U.S-share declined to 47%, DOWN from 83% over the same period.

Wow.

https://twitter.com/GRDecter/status/1651280199034585089?s=20



The dollar falls behind the yuan for the first time in Chinese cross-border transactions


https://markets.businessinsider.com/news/currencies/dedollarization-dollar-dominance-yuan-chinese-cross-border-transactions-usd-renminbi-2023-4

The yuan overtook the dollar as the most used currency for Chinese cross-border transactions.

Its use in cross-border payments and receipts increased to 48% versus 47% for the dollar.

China is pursuing further use of the yuan to avoid currency mismatches in trade.

For the first time ever, the yuan has eclipsed the US dollar as the most used currency for Chinese cross-border transactions.

The yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a Reuters calculation of data from China's State Administration of Foreign Exchange.


In 2010, the yuan's share was nearly 0% while the dollar's was 83%, according to Bloomberg. The reversal comes amid China's efforts to empower the yuan, also known as the renminbi, in trade and capital markets.

Meanwhile, Chinese bonds have seen greater inflows recently, alongside outflow increases to Hong Kong stocks.

Increased reliance on the yuan will reduce any risks of currency mismatches. For this reason, China's State Council is encouraging expansions in the renminbi's use for cross-border transactions.

But the dollar remains dominant beyond China's borders. For example, the yuan's share of global currency transactions for trade finance was just 4.5% in March compared to 83.7% for the dollar, per Reuters.



Still, the yuan has continued to make inroads, especially since Western sanctions that froze Russia's foreign exchange reserves highlighted the potential risk of holding dollars.

China has entered into non-dollar trade agreements with countries such as Brazil. And the yuan has overtaken the dollar as Russia's most traded currencysince Moscow was largely cut off from global finance after its invasion of Ukraine last year.

But analysts say the dollar is unlikely to lose its dominance in global markets in the foreseeable future. That's as the yuan is too tightly controlled by the Chinese government.

Read the original article on Business Insider

Riaz Haq said…

Speaking at ET Awards for Corporate Excellence 2023 last week, the veteran banker had said, “I genuinely feel that the biggest financial terrorist in the world is the US dollar." Telling why he feels this way, the Kotak Mahindra Bank chief stated that all our money is in nostro accounts and somebody in the US can say

https://youtu.be/QXC9BsiRLlU

-----------------

'I'd like to correct': Uday Kotak clarifies ‘financial terrorist’ statement about US dollar

In the March quarter, Kotak Mahindra Bank witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore

https://www.businesstoday.in/industry/banks/story/uday-kotak-clarifies-financial-terrorist-statement-on-us-dollar-as-reserve-currency-379470-2023-04-30

Uday Kotak, the CEO of Kotak Mahindra Bank, has provided further clarification on his recent statement about the US dollar being the "biggest financial terrorist in the world." Kotak clarified in a tweet that his statement about the "financial terrorist" was not specifically aimed at the US dollar but rather at the disproportionate power that any reserve currency holds.

According to Kotak, the US dollar's status as a reserve currency gives it an unfair advantage in controlling global transactions, which could potentially result in other countries becoming overly reliant on it. He further elaborated that a reserve currency wields significant power, including the ability to dictate whether money in nostro accounts can be withdrawn, which can have a profound impact on the global financial landscape. Kotak believes that the world is actively searching for an alternative reserve currency and posits that India has the potential to promote the Indian Rupee as a strong contender to fill this role on the global stage. By doing so, he suggested that India can reduce its dependency on the US dollar and promote a more diversified, stable global financial system.

He clarified his previous statement in a tweet saying, "In a recent discussion on the US dollar, I inadvertently used words 'financial terrorist,' which I would like to correct. What I meant was that a reserve currency has disproportionate power, whether it is nostro account, 500 bps rate increase, or emerging countries holding $ for liquidity."

In the March quarter, Kotak Mahindra Bank - the second-largest private bank in India - witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore. The bank's net interest income (NII) also saw a significant jump of 35 per cent YoY to reach Rs 6,102.6 crore.

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A nostro account refers to an account that a bank holds in a foreign currency in another bank. Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign exchange and trade transactions.

https://www.investopedia.com/terms/n/nostroaccount.asp#:~:text=A%20nostro%20account%20refers%20to,foreign%20exchange%20and%20trade%20transactions.



Riaz Haq said…
#Pakistan joins global trend in dumping #US #Dollar for #Chinese #yuan. The first shipment of over 750,000 barrels of #Russian #oil is expected to arrive in June, with Pakistan agreeing to a discounted per-barrel price of around $50–$52. #energy
https://www.cryptopolitan.com/pakistan-joins-in-dumping-usd-for-yuan/


Pakistan decides to purchase discounted Russian oil using the Chinese yuan, joining the global trend of de-dollarization.
The first shipment of over 750,000 barrels is expected to arrive in June, with Pakistan agreeing to a discounted per-barrel price of around $50–$52.
The decision follows sanctions imposed on Russia by the EU, G7, and their allies in response to Russia's invasion of Ukraine.
In a move reflecting the global shift towards de-dollarization, Pakistan has decided to purchase discounted Russian oil using the Chinese yuan.

As part of the BRICS economic bloc’s efforts to conduct international trade in currencies other than the US dollar, Pakistan’s decision signals another transaction conducted using an alternative currency.

Alternative payment for Pakistan amid sanctions
Pakistan is set to pay for Russian oil with the Chinese yuan, as local media report that the first cargo of over 750,000 barrels is expected to arrive in June.

Although the exact amount and mode of payment have not been disclosed, sources reveal that Pakistan has agreed to a discounted per-barrel price of around $50–$52, significantly lower than the G7 price cap on Russian oil of $60 per barrel.

This development follows sanctions imposed on Russia by the EU, G7, and their allies, including a ban on seaborne oil exports and a price cap on Russian oil.

These measures were in response to Russia’s invasion of Ukraine and aimed to distance the nation from the West. Amid the focus on the Chinese yuan, talks of a BRICS trading currency are expected to progress at the annual BRICS summit.

The growing influence of the Chinese Yuan
With the first shipment of 750,000 barrels anticipated to dock in June, Pakistan plans to pay for Russian crude oil using Chinese yuan. The Bank of China is expected to facilitate the transaction.

However, the mode of payment and the discount offered to Pakistan remain undisclosed, as publicizing such information is not considered beneficial for either party.

An official from Pakistan’s Ministry of Energy stated that Russia would supply URAL crude in the test cargo, which Pakistan Refinery Limited (PRL) will likely refine.

Meanwhile, other sources report that Pakistan has agreed to a per-barrel price of around $50-52, lower than the G7 price cap on Russian oil of $60 per barrel.

The decision to use the Chinese yuan for this transaction illustrates the currency’s growing acceptance in international trade, as well as concerns about the US abusing its dollar hegemony through sanctions.

The yuan’s stability, China’s economic strength, and its large consumer market make it an increasingly reliable choice for international settlements.

In recent months, several countries have expressed their inclination to settle trade deals in the yuan instead of the US dollar. Iraq’s central bank announced in February that it would trade with China using the yuan.

Argentina followed suit in April, declaring that it would start paying for Chinese imports in yuan rather than in US dollars.

According to data from multiple sources, the yuan became the most widely used currency for cross-border transactions in China in March, overtaking the dollar for the first time.

The yuan was used in 48.4 percent of all cross-border transactions, while the dollar’s share declined to 46.7 percent from 48.6 percent a month earlier.

This shift towards the Chinese yuan can be attributed to China’s ongoing efforts to open its financial sector, making it easier for global investors to participate in its domestic financial market.

As the yuan’s role in global payment and settlement, foreign exchange reserves, and investment and financing expands, the de-dollarization trend is expected to continue.

Riaz Haq said…
Top 10 Countries that Export the Most Goods and Services (Current US$ millions - World Bank 2020)

https://worldpopulationreview.com/country-rankings/exports-by-country

Rank Country Exports (Current US$)
1 China $2,723,250.43
2 United States $2,123,410.00
3 Germany $1,669,993.51
4 Japan $785,365.75
5 United Kingdom $770,478.62
6 France $733,165.40
7 Netherlands $711,504.80
8 Hong Kong (China SAR) $612,566.52
9 Singapore $599,216.28
10 South Korea $596,945.20

Profiles of the world's largest exporters
1. China
Aside from the European Union (which is a collective of many countries), China is the world’s largest exporter. In 2020, China exported an estimated $2.72 trillion worth of goods and services, primarily electronic equipment and machinery such as broadcast equipment, computers, integrated circuits, office machine parts, and telephones. In 2018, China’s exports made up about 10.78% of the global total.

2. United States

The U.S. is the second-largest exporter in the world, with an estimated $2.12 trillion in exports for 2020. The largest exports of the U.S. are crude and refined petroleum; integrated circuits; pharmaceuticals and medical instruments; and aircraft including planes, spacecraft, and helicopters as well as their replacement parts. One of the reasons that the United States lags behind China in exports is the cost of labor. Many goods cannot be produced, manufactured, or assembled in the U.S. for a price comparable to that in China.

3. Germany
Having exported an estimated $1.67 trillion worth of goods and services in 2020, Germany is the world’s third-largest exporter. As one of the most technologically advanced countries in the world, Germany’s main exports include automobiles (BMW, Mercedes-Benz, Porsche, Audi, Volkswagen), pharmaceuticals (Bayer), aircraft, machinery, electronics, and chemicals. Germany is the third of three countries to have exports exceeding $1 trillion, behind only China and the United States.

4. Japan
Japan’s exports for 2020 were valued at an estimated $785.4 billion. Japan’s major exports include automobiles (Toyota, Honda, Nissan, Mazda, Suzuki, more) and automobile parts, integrated circuits and electronic devices (Nintendo, Panasonic, Sony, and many more). Japan's largest export customers are China, the United States, South Korea, Taiwan, and Hong Kong.

5. United Kingdom

The United Kingdom ranked as the fifth-highest exporter in the world in terms of dollar value in 2020, shipping an estimated $770.5 billion in goods and services to international customers. The U.K.'s top exports include cars (Bentley, Jaguar, Mini, Rolls-Royce, more), gas turbines, gold, medicines, hard liquor, antiques, and crude petroleum (which is often first imported from Norway, then exported to the rest of Europe, as well as China and South Korea).
Riaz Haq said…


Arnaud Bertrand
@RnaudBertrand
SCMP editorial: https://scmp.com/comment/opinion/article/3242880/dollar-still-king-how-much-longer

"The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap...

In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift."


https://x.com/RnaudBertrand/status/1728923824996139481?s=20

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The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap worth a maximum of 50 billion yuan (HK$55 billion) over the next three years.

In immediate terms, the pact will foster bilateral commerce denominated in both the yuan and the riyal. In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift. It has been a very long time coming.

Almost a year ago, President Xi Jinping made a historic visit to Riyadh, followed by Hong Kong Chief Executive John Lee Ka-chiu in February. A flurry of deals followed.


The Shanghai Stock Exchange and its Saudi counterpart have started collaboration on cross-listings, including exchange-traded funds (ETFs), financial technology (fintech), environmental, social and governance (ESG) and data exchange.

China, Saudi Arabia central banks sign currency swap accord to foster trade
21 Nov 2023
The People’s Bank of China (PBOC) building in Beijing on Tuesday, April 18, 2023. Photo: Bloomberg
The Hong Kong Monetary Authority, the city’s de facto central bank, and the Saudi Central Bank have enhanced ties covering the latest technologies in regulatory supervision and monitoring, and in financial fields such as tokenisation and new payment systems.

However, the latest currency swap pact will be the most important. It means trade can be conducted in local currencies, instead of defaulting to the US dollar. This may be seen as a challenge to US dollar dominance. Perhaps in the longer term, it is. But there is a good economic reason.

The current US federal interest rate of 5-plus per cent has pushed the dollar to historical levels against most other currencies, making trade denominated in the dollar more expensive.

There are obvious advantages for two big trade partners like China and Saudi Arabia to be able to utilise a local-currency option, which will help relieve pressures from having to trade in a more expensive currency.

Global “de-dollarisation” may take a while yet, but the trend already reflects cracks in a global economy long used to US currency settlements.

The yuan may or may not pose a challenge to dollar hegemony, but its internationalisation continues apace – to the benefit of both the Chinese and global economies.

Riaz Haq said…
The era of US dollar dominance is 'finished,' says Wall Street veteran who just retired after 54 years


https://markets.businessinsider.com/news/currencies/dick-bove-banks-usd-dollar-dominance-crypto-china-trade-outsourcing-2024-1

"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times. Bove, 83, predicted that China's economy would surpass America's in size.

The dollar's reign as the world's reserve currency is nearly over, Dick Bove says.

The newly retired bank analyst blamed corporate offshoring and flagged the threat posed by China.

Bove highlighted the de-dollarization trend and said other analysts are too bought in to admit it.

The US dollar has been the lifeblood of global finance and trade since World War II — but one Wall Street veteran thinks the end of that era is nigh.

"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times.

Bove, 83, predicted that China's economy would surpass America's in size. He blamed the outsourcing of US manufacturing to other countries, arguing that trend has given other countries more control of international production, the global economy, and worldwide money flows.

He also suggested that cryptocurrencies such as bitcoin could help fill the void left by the dollar's shrinking influence.

Dollar-denominated assets make up nearly 60% of international reserves, per the International Monetary Fund. However, several countries are embracing "de-dollarization" — working to erode dollar dominance — especially after the US took advantage of Russia's reliance on the greenback to levy sanctions against it following its invasion of Ukraine in 2022.

Nations ranging from Brazil and Argentina to India and Bangladesh are exploring the use of backup currencies and assets, such as the Chinese yuan and bitcoin, for trade and payments.

Several governments have blasted the excessive influence of US monetary policy on other economies and currencies, the dollar's strength for pricing out poor countries from imports, and the diminishing need for a petrodollar now the US has achieved energy independence through domestic shale oil and green energy production.

Bove, who worked at 17 brokerages during his career, told the Times that analysts who aren't forecasting dollar doom are simply "monks praying to money" who are unwilling to bite the hand that feeds them: the traditional financial system.

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