The dollar shouldn’t be the reserve currency, but neither should the renminbi

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The dollar shouldn’t be the reserve currency, but neither should the renminbi

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The dollar shouldn’t be the reserve currency, but neither should the renminbi
22 September 2019

Authors: Matthew Harrison, HKIIF and Geng Xiao, PKU

With the renminbi used for only around 2 per cent of international transactions and reserve holdings, it’s still far from supplanting the US dollar as the currency of choice and its use lags far behind what China’s 16 per cent share of the global economy would suggest. The renminbi isn’t well placed to be a reserve currency. Rather, the International Monetary Fund’s (IMF) special drawing rights (SDR) would be the ideal candidate for global settlements.

It’s well known that China is not by itself in sharing dissatisfaction with the US dollar-dominated international monetary system (IMS). But replacing the dollar with another national currency is not the answer. We have high hopes for the SDR — presently just an IMF reserves-accounting convention. The IMS is in near-crisis and the SDR offers a way out.

The post-Bretton Woods non-system of free-floating currencies has accommodated trade and investment expansion at the cost of recurring instability and financial crisis. The IMS is recession-biased. Trade debtor countries such as Greece are forced to restructure when most painful to do so, while creditor countries such as Germany face no sanction. The IMS is also inequity-biased. Developing countries accumulate precautionary reserves while subsidising the world’s richest economy — the United States — and propagating trade imbalances. Dollar monetary policy is intended to serve US interests, not global needs. The IMF intervenes only once approached and has limited resources and authority. A revamp of the IMS is needed.

Proposals for revamping the IMS outside of renminbi internationalisation include enlarging the role of the IMF, resurrecting Keynes’ bancor or constraining private capital flows. These have obviously gained no traction.

But renminbi internationalisation would be of limited assistance. Even if the US dollar’s share were gradually replaced by the renminbi, little would change. The world would still be dependent on a national currency managed according to national needs, with the same destabilising effects.

Full article https://www.eastasiaforum.org/2019/09/2 ... -renminbi/
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

Post by SternAAlbifrons »

"The post-Bretton Woods non-system of free-floating currencies has accommodated trade and investment expansion at the cost of recurring instability and financial crisis. The IMS is recession-biased. Trade debtor countries such as Greece are forced to restructure when most painful to do so, while creditor countries such as Germany face no sanction. The IMS is also inequity-biased. Developing countries accumulate precautionary reserves while subsidising the world’s richest economy — the United States — and propagating trade imbalances. Dollar monetary policy is intended to serve US interests, not global needs. The IMF intervenes only once approached and has limited resources and authority. A revamp of the IMS is needed."

Very interesting guy - Xiao Geng (^^ co-author)
He has some very interesting perspectives on the current Hong Kong situation and the China/USA trade war also.

President of the Hong Kong Institution for International Finance, is a professor and Director of the Research Institute of Maritime Silk-Road at Peking University HSBC Business School.
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

Post by frank lee bent »

The USD is overwhelmingly the only currency physically deployed globally.

In order to use another currency, there must be a physical presence in the global market.

This is one of the reasons for such a universal opposition by national central banks to cryptos, they undermine the status quo.
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

Post by whatwat »

If they allow cryptos then control would be lost.
The populous need control from their own stupidity.

Much that everyone wants “freedom” and despise the wealthy 1% that control the banks and media etc it’s been that way for millennia. It’s the way it is.
Don’t listen to Chinese whispers.
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

Post by Duncan »

whatwat wrote: Mon Sep 23, 2019 11:23 am If they allow cryptos then control would be lost.
The populous need control from their own stupidity.

Much that everyone wants “freedom” and despise the wealthy 1% that control the banks and media etc it’s been that way for millennia. It’s the way it is.

It’s the way it is.

And that's the way it will stay.
Cambodia,,,, Don't fall in love with her.
Like the spoilt child she is, she will not be happy till she destroys herself from within and breaks your heart.
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

Post by whatwat »

Duncan wrote: Mon Sep 23, 2019 11:42 am
whatwat wrote: Mon Sep 23, 2019 11:23 am If they allow cryptos then control would be lost.
The populous need control from their own stupidity.

Much that everyone wants “freedom” and despise the wealthy 1% that control the banks and media etc it’s been that way for millennia. It’s the way it is.

It’s the way it is.

And that's the way it will stay.
In our lifetime.
Maybe they’ll be a doomsday scenario like the countless apocalyptic movies that've been made.

The population will rise up and gain control. Then someone will have to lead them of course, unless everyone just does what they please (anarchy I think it’s called). Then they’ll be arguments over who should lead so they’ll have votes. But then the ones with all the guns and ‘money’ will win. Then they’ll be arguments in different “districts” who owns and controls what do they’ll be meetings and the powerful leaders will want more power and control.
Then in years to come some of the population will get pissed of with being told what to do by a select few with all the water, guns and currency and they’ll rise up....
Don’t listen to Chinese whispers.
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Re: The dollar shouldn’t be the reserve currency, but neither should the renminbi

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Recent article on this topic; long read :

Southeast Asia’s Growing Interest in Non-dollar Financial Channels—and the Renminbi’s Potential Role
Robert Greene
August 22, 2022
Summary:
Importantly, the future of large-value cross-border payments in Southeast Asia and the renminbi’s role depend in part on how Washington responds to efforts aimed at transforming local currency financial infrastructure in the region.


In late June, the People’s Bank of China (PBOC)—China’s central bank—announced the launch of a new emergency liquidity arrangement that can be funded using renminbi and tapped by participating central banks during times of market stress. Three of the five participating central banks are Singapore’s, Malaysia’s, and Indonesia’s, which each recently renewed agreements with the PBOC implicitly aimed at reducing dollar usage in cross-border payments. This follows policymakers in Thailand, Laos, Cambodia, and Myanmar all announcing efforts to reduce dollar usage, as well as comments by Indonesia’s central bank head that consumers across five of Southeast Asia’s largest economies will soon be able to make intra-regional cross-border payments via linkages that avoid using the dollar as an intermediary, as is currently often the case. Against this backdrop, some in Beijing are positioning expanding cross-border renminbi financial channels—including the fast-growing Cross-Border Interbank Payment System (CIPS)—as a way for businesses across Southeast Asia to avoid using the dollar.

Several factors are behind the various efforts aimed at reducing dollar usage in Southeast Asia. To begin with, many officials are concerned about the potential economic impacts of U.S. monetary policy tightening on the region given its high usage of the dollar; accordingly, some are seeking to reduce usage of the dollar in intra-regional trade payments as a means of curbing dollar reliance more broadly. Recent sanctions may also be spurring demand for alternative financial channels—for example, Myanmar’s military government is actively exploring how to circumvent EU and U.S. sanctions to transact with Russia. And for years, central bankers in the region have had issues with the inefficiencies of existing systems and processes through which most intra-regional trade and financial transactions flow. Beijing sees an opportunity to leverage these dynamics in order to achieve the PBOC’s goal of expanding the renminbi’s use in cross-border trade and investment.

So will businesses across the region increasingly abandon the dollar for the renminbi or local currency alternatives? The new emergency renminbi liquidity arrangement and other agreements between the PBOC and Southeast Asian central banks will—in the eyes of some researchers at major Chinese banks and think tanks—lead to greater intra-regional renminbi usage and financial integration, although underdeveloped foreign exchange markets remain an obstacle to these ambitions. Importantly, the future of large-value cross-border payments in Southeast Asia and the renminbi’s role depend in part on how Washington responds to efforts aimed at transforming local currency financial infrastructure in the region.
The Dollar’s Dominance in Southeast Asia

Data indicate that in recent years over 80 percent of outstanding international debt securities in most major Southeast Asian emerging markets have been dollar-denominated. Also, most cross-border trade payments from, to, and within Southeast Asia are invoiced in dollars. For example, according to an Asian Development Bank report, around 80 to 90 percent of exports from most large emerging market economies in Southeast Asia were invoiced in dollars between 2015 and 2020. The dollar’s dominance in Southeast Asian trade payments reinforces its dominance in financial markets and vice versa.

In full: https://carnegieendowment.org/2022/08/2 ... -pub-87731
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