global currencies, monetary geopolitics – BRICS, CBDC, Euro, Dollar

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updates 5-2023 29-4-2023 Heavy lies the crown – The power and the limits of the American dollar – The greenback is still king. But those who want to evade it are finding ways to do so

Dollar dominance monetary currency global - Economist 4-2023 =- 2023 America’s empire is bankrupt – The dollar is finally being dethroned – by John Michael Greer

…For many decades now, the threat of being cut out of international trade by US sanctions was the big stick Washington used to threaten unruly nations that weren’t small enough for a US invasion or fragile enough for a CIA-backed regime-change operation. Over the last year, that big stick turned out to be made of balsa wood and snapped off in Joe Biden’s hand. As a result, all over the world, nations that thought they had no choice but to use dollars in their foreign trade are switching over to their own currencies, or to the currencies of rising powers. The US dollar’s day as the global medium of exchange is thus ending… 30-3-2023 Could Europe benefit from de-dollarisation? – America’s financial hegemony is under threat – by Philip Pilkington

This week Brazil and China reached a deal to trade using their own currencies rather than the US dollar. The Chinese are fulfilling their vow from February to open up a clearing house to settle yuan-denominated trades in Brazil, having previously announced similar clearing houses in Pakistan, Kazakhstan, and Laos.

In many ways, this development is inevitable. As of 2021, China accounts for 31.3% of Brazilian exports and 22.8% of their imports, the most of any country. The United States comes a distant second, accounting for only 11.2% of Brazilian exports and 17.7% of imports. China has been Brazil’s largest trade partner for fourteen years. At a certain point, both parties were going to raise the question of why their trade should use a third party currency.

The same day that the Brazilian trade deal was announced, another major story hit global currency markets: China settled its first LNG trade in yuan. This development alone would be important enough to bear scrutiny given that much-vaunted status of the US dollar as an energy currency — the ‘petrodollar’ — but reading beyond the headlines reveals something even more surprising. The trade was not settled with an energy company in some far-off Middle Eastern country, but instead with TotalEnergies, the French supermajor. With revenues of over $182bn and more than 100,000 employees, TotalEnergies is by far the largest company in France.

This energy deal suggests that ‘yuanisation’ will not be confined to the global periphery. Until recently, suggestions that the BRICS+ countries would dump the dollar and move to new currencies was met with derision. The Brazilian trade deal puts that scepticism firmly to bed. But it now appears that the yuan is making inroads into Europe. While the speed of this change is shocking even to those of us paying attention, these developments were presaged by German Chancellor Olaf Scholz’s controversial visit to Beijing last November.

The question that logically follows this is cui bono – to whom does this benefit? Obviously, yuanisation puts wind in the sails of the Chinese. Their goal is clearly to carve out an alternative global trade regime to rival the American-led model that has been in place since 1945. The countries that jump on board the BRICS+ bandwagon are also likely to be beneficiaries.

The most obvious loser is the United States. Currency use in global trade is a zero-sum game. Every yuan that changes hands for goods and services on the global markets is a dollar that did not change hands. America has long relied on the hegemonic status of its currency for both its ability to consume more than it produces and for its soft power projection. America’s geopolitical strategy, largely centred around imposing sanctions regimes, unravels if there are credible alternatives in place.

The situation for Europe is less clear, as recent developments there demonstrate. The Europeans have long been unhappy with playing second fiddle to the Americans in global economic relations, and counteracting this was part of the rationale for launching the euro around the turn of the millennium. Scholz’s Beijing visit signals that Europe could try to position itself between America in the West and China in the East, a potentially useful long-term ploy to benefit from developments in both large economies.

Britain, on the other hand, is in an unusually vulnerable position. Since the 1980s, British manufacturing has declined dramatically, and British living standards have become increasingly reliant on a financial services sector concentrated in the City of London. In reality, the City is an outpost of American financial power. This means that dedollarisation makes the City less important on the global stage — and the process may even trigger an American reaction to onshore their financial services, thereby dealing a punishing blow to Britain.

The City has been under pressure for some time now. Large FTSE-listed firms have been moving to New York, while IPOs have been falling off a cliff. Prior to the American turn against China, the City looked set to be a major player in yuan trading. But this seems unlikely now that Sino-American relations have soured, so joined at the hip are Britain and the US in their foreign policy. In fact, if Britain ever did want to pursue the balancing act being attempted by the Europeans, the country would likely have to re-join the European Union — with all the problems that raises. All the while, China’s influence can only spread, and the European mainland may well be a key part of that.

> Monetary Economics, Foreign Policy Analysis, Monetary theory, Dollarization and Euroization, Foreign Exchange Market, Capitalism, Monetary history, Political Economy of Monetary Policy, Monetary Policy, Mercantilism, Monetary Policy and Exchange Rate, Monetary Economics, Inflation targeting, dollarization, Exchange Rates, Dollarization, Neomercantilism 2023 Dollarization is a Neo-Mercantilistic Economic System by Emilio José Calle Celi

This video shows how Dollarization is a Neo-Mercantilistic economic system, combining characteristics of both classical mercantilistic and modern capitalism. Concepts are presented, and the way several important economic variables are affected by this system is shown through comparative economics. Finally, an equation for hard seignorage, or seignorage without inflation, is presented and contrasted between Capitalism and Neo-mercantilism. 8-2-2023 Why a Brics currency is a flawed idea – Non-Chinese members of the grouping might increase dependence on Beijing – by Paul McNamara

The Federal Reserve hiking cycle of 2022 emphasised how tightly international monetary conditions are linked to those in the US, while the robust sanctions-led US response to the Russian invasion of Ukraine has led to a debate about how to build a financial system independent of the west.

Within the Brics countries of Brazil, Russia, India, China and South Africa, there is a growing clamour to challenge the dollar’s hegemony.

Russian leader Vladimir Putin said last June that the Brics were working on developing a new reserve currency based on a basket of currencies for its member countries. Russia’s foreign minister Sergei Lavrov said in January the issue would be discussed at the Brics summit in South Africa at the end of August.

The statement from Russia is probably best interpreted as a gesture of Russian obeisance to China and a desire to undermine the US. But Brazil president Luiz Inácio Lula da Silva also has expressed vague support for the possibility of common currency for the Brics over time, as his country starts preparatory work on a similar project with neighbour Argentina. Some have suggested Brics could develop something akin to the IMF’s special drawing rights, a reserve currency based on a basket of leading currencies. But SDRs are far more diversified with an underlying basket of around 40 per cent dollar, 30 per cent euro, than any Brics equivalent could expect to be.

The problem is that Brics is not an especially useful economic term. It marries an economic superpower in China with a potential one in India with three essentially stagnant commodity exporters.

Far from being a remotely sensible optimal currency area, the economies are dramatically different in terms of trade, growth, and financial openness. While Russia’s economic performance was clearly the weakest of the five Brics last year, Brazil and South Africa have struggled to prosper without strong commodity prices underpinning low interest rates and rising domestic credit.


Nouriel Roubini
A bipolar currency regime will replace the dollar’s exorbitant privilege

The relative performances are stark. Real GDP per capita at constant prices between 2008-2021 rose 138 per cent for China, 85 per cent for India 13 per cent for Russia, and 4 per cent for Brazil. South Africa saw a 5 per cent contraction over the same period.

Yet even this diversity is not the primary problem in treating the Brics as a bloc. In the original 2001 Goldman Sachs paper that coined the term, China accounted for half the original four-country bloc’s gross domestic product measured at market rates (South Africa was added in 2010).

The most recent IMF data puts China’s share at 73 per cent (72 per cent if South Africa is wedged in). Since 2003, the Brics share of global output at market prices has risen from 8.4 to 25.5 per cent. Of this 17.1 percentage point rise, China accounts for 14 points. It would be unkind but not obviously unfair to note the resemblance with the likely-apocryphal Enver Hoxha quote that “Together, the Albanians and the Chinese are a quarter of the world’s population”.

China’s dominance is underlined further by the fact that it is a key trade partner for the commodity exporters, which have industrial cycles that clearly track the ebb and flow of the Chinese credit cycle. And after the attack on Ukraine, China’s financial influence over isolated Russia has risen further.

It is obvious but Chinese strategic interests are not especially aligned with those of the other countries. One of China’s priorities is finding somewhere to park its external surpluses beyond the reach of the US Office of Foreign Assets Control and finding stores of value other than US Treasuries. While none of the other four Brics members can provide liquid assets, they can provide investment opportunities especially in raw materials. As with the Belt and Road Initiative, Chinese authorities prefer to have control in such matters.

Russia and the gulf energy exporters prefer to accumulate “rainy day” sovereign wealth funds away from the US. However, the alternative to the US is not a diversified group of growing countries, but essentially one country — China — with a vast thirst for energy and other raw materials.

So not only are there practical challenges in a common Brics currency. In seeking one to challenge US hegemony in foreign exchange, the non-Chinese members of countries of the group may just increase their dependence on Beijing.

kitco.comyoutube – 14-12-2023 Frank Giustra warns that the dollar will be dethroned in ‘bifurcated’ global monetary system, CBDCs and AI could usher in a ‘terrifying’ world with mass joblessness and digital ‘control’ – by Cornelius Christian 10-1-23 BRICS undermine dollar hegemony with gold purchases – Central banks have been accumulating the precious metal at a record rate – by PhilipPilkington

Just before the New Year, the Financial Times ran a piece noting that central banks were accumulating gold at a rate not seen in 55 years. In the third quarter of 2022, analysts estimate that almost 400 tonnes of gold were bought by central banks. That much gold would take around 16 semi-trailer trucks to transport.

In November, traders in the gold market noted that there was a huge buyer entering the market and purchasing very large volumes of gold — a so-called ‘whale’. In December it was revealed that this whale was the Chinese central bank. But it wasn’t just the Chinese buying gold. Other buyers include Turkey, India, Uzbekistan, Egypt, Qatar, and Iraq. It is worth noting that many of these countries have expressed an interest in joining the BRICS+ alliance.

Why are central banks snapping up gold? Most commentators recognise that it is due to geopolitical turmoil. Jonathan Guthrie at the FT, for example, argues that “gold is the currency of fear and mistrust,” and that “the democratic west and the authoritarian east are pulling apart amid mutual recriminations”. Guthrie is certainly correct that a geopolitical schism is taking place, but since when is gold the currency of mistrust? Throughout history gold-backing has been used to buttress trust in currencies — when sterling was the global reserve currency it was said to be “good as gold”.

Our period of paper currency is the exception rather than the rule, and it only started in 1971 when the US dollar link to gold was broken. It was 1967 which saw levels of gold purchases by central banks comparable to what we observed at the end of 2022. All of this raises the obvious question: what if these purchases signal the beginning of the end of the paper dollar as the global reserve currency?

It seems unlikely that the countries buying gold are going to try to give their currencies gold backing. But it appears probable that the immediate cause of the rush for gold is an attempt to diversify out of dollars. Since the United States seized Russia’s dollar reserves after the invasion of Ukraine last year, other countries have grown distrustful of holding dollars as they fear that they, too, could see their reserves seized in the future. Hence the race for gold.

Perhaps there is no plan behind the current gold rush, but it may be read in retrospect as the beginning of the evolution of a new global monetary order. It could be the first step toward this reshaping of the landscape, as countries around the world try to find alternatives to the dollar. The West is learning a hard and fundamental lesson: financial systems are built on trust, and if they are weaponised they lose the trust required to maintain their dominance. It would be strongly in our self-interest to attempt to rebuild faith in our financial system if we want to protect our global power. 2/4/2021 The US dollar’s hegemony is looking fragile – The modernisation of China’s exchange-rate system could deal the currency a painful blow by Kenneth Rogoff 7/2020 It Is Time to Abandon Dollar Hegemony Issuing the World’s Reserve Currency Comes at Too High a Price By Simon Tilford and Hans Kundnani  2019  WORLD CURRENCY: WHO NEEDS A NUMERAIRE?  By  Tom WilsonMarc Jones

“… How Global Currencies Work is the work of Barry Eichengreen, Arnaud Mehl, and Livia Chitu. Mehl and Chitu are both economists at the European Central Bank. Eichengreen is a professor of economics and political science at the University of California, Berkeley. Their hypothesis is that it is perfectly possible for a plurality of currencies to share the global stage.  This is an important thesis, to which currency traders and speculators might want to pay attention. It means, among much else, that the PRC’s renminbi and the US dollar are not necessarily engaged in a sort of iron-cage death match. The rise of the former need not mean the demise of the latter.  Further, this new take on global currencies doesn’t make the Bretton Woods Conference out to be as earth shaking an event as is often thought.     ….    (The) data does not show quite the London-centered financial world presumed by the conventional account. At the beginning of that period, sterling accounted for 64% of reserves, with Germany’s mark and France’s franc also constituting “non-negligible shares.”  …   For a new player to take central stage within a decade indicates, to these authors, that the lock-in or network effects are not as powerful as they are sometimes made out to be. They were not working for the pound.