Author: Liu Ying (Researcher at Chongyang Institute for Financial Studies, Renmin University of China)
A few days ago, Brazilian President Lula visited China, and China and Brazil issued a joint statement pointing out the need to strengthen trade in their own currencies. In order to promote the direct use of local currency for trade settlement between the two countries, China has established a RMB clearing bank in Brazil this year, bringing the number of RMB clearing centers established in my country to 31 in 29 countries and regions, and currency swaps have been carried out with 40 countries. The scale exceeds 4 trillion yuan.
China-Pakistan monetary cooperation abandoning the U.S. dollar is not an isolated case. The serious negative spillover effect brought about by the Fed’s aggressive monetary policy has brought many developing countries a situation of three killings of stocks, debts and exchanges, wanton “long-arm jurisdiction” and financial sanctions and beggar-thy-neighbor behavior. The monetary policy has fully revealed the hegemony of the US dollar, and the undercurrent of the liquidity crisis in the US and European banking industries has caused many countries to try to abandon the US dollar in bilateral trade and directly use their own currencies for settlement. India and Malaysia already use their currencies for trade. Brazil and Argentina not only advocate the use of their own currency for settlement, but are even considering developing a common currency. When Malaysian Prime Minister Anwar Anwar visited China, he proposed the establishment of an Asian Monetary Fund, no longer relying on the US dollar, and ASEAN is also discussing de-dollarization. From Latin America to the Middle East, to Eurasia, Russia not only uses its own currency for trade with China and India, but also exports natural gas to unfriendly countries in rubles. From bilateral to multilateral, from theory to consensus to action, global de-dollarization is accelerating.
De-dollarization may become the general trend
Judging from the data, the US dollar’s share in international payments dropped sharply to 40% in January this year, while the US dollar’s share in the official reserve currencies of various countries dropped from 71% in 1999 to less than 59%. More and more dollars in the official reserves of various countries have been replaced by gold and other currencies. Not only the Russian central bank is increasing its gold holdings, but China and the central banks of many countries, especially the central banks of developing countries and emerging economies, are continuously increasing their gold holdings by a large margin. In 2022, the scale of gold held by central banks of various countries will exceed 1,136 tons, the second highest since World War II.
From a theoretical point of view, the world currency has the functions of transaction, investment, and reserve. As a world currency, the U.S. dollar should have a quasi-public nature and take into account the interests of the country and the world. Just declare that “our currency is your problem!” If the price of the U.S. dollar as the world‘s currency ruler is always changing drastically, then the commodity and asset prices marked by the ruler will be difficult to stabilize, which will lead to financial market risks. Therefore, the Fed periodically raises interest rates. With interest rate cuts, the repatriation of U.S. dollars to deprive other countries of their interests has become a source of crisis in itself. If the U.S. dollar, as the world currency, does not assume the responsibility of being a world public good, and the United States only seeks its own interests, exports inflation and risks to other countries, collects them when it sees benefits, flees when it sees risks, and dumps the pot when it encounters a crisis, then de-dollarization Fear becomes the general trend.
De-risking and de-hegemony lead to de-dollarization
Increased risk aversion spread to the dollar. The United States often cuts interest rates to export inflation, and raises interest rates to return the dollar. The Fed uses “turning clouds and rain” to stir up the tide of the dollar, which brings risks to the world. This round of rapid interest rate hikes by the Federal Reserve has not only made small and medium-sized banks precarious, but also intensified the risks of large financial institutions. After the thunderstorm of Blackstone in March this year, Silicon Valley Bank and others went bankrupt one after another, and the crisis spilled over, leading to the acquisition of Credit Suisse. The banking crisis in Europe and the United States has accelerated the process of de-dollarization. Reducing dollar holdings and increasing gold holdings in foreign exchange reserves has once again become a hot topic and a realistic choice for many countries.
Selling U.S. debt has become a trend. The reduction of U.S. debt holdings may have been the behavior of a few countries, but with the inversion of U.S. bond yields, the risk exposure of the U.S. banking industry, and the abuse of sanctions by the United States to consume the credibility of the United States, the credit of U.S. debt and the U.S. dollar has been lost. The Federal Reserve’s reckless and substantial rate hikes have caused the US federal funds rate to rise from zero to a high of 5%, leaving the world in an environment of high risk, high debt, high interest rates, and low growth. It has become a consensus to sell US bonds. In 2022, holding Japan and China, which hold the most U.S. debt, reduced their holdings of U.S. debt by US$224.5 billion and US$173.2 billion, respectively. Not only China and Japan, which are big holders of U.S. debt, but also France, Saudi Arabia, Israel, Turkey and other countries are also selling U.S. debt one after another.
Sanctions backlash endangers the dollar. With the shale gas revolution in the United States, the United States has transformed from a traditional oil importer to an oil exporter, and the petrodollar has gradually weakened. In the Ukrainian crisis, the United States and Europe imposed nearly 20,000 sanctions on Russia, including energy embargoes and financial controls, and the United States and other countries removed many Russian banks from SWIFT. This move has also made Russia more determined to implement the de-dollarization strategy since 2014. While significantly reducing the share of the US dollar in foreign exchange reserves, it has greatly increased the share of the renminbi and gold. As an anti-sanction, Russia, which has one of the largest oil and gas reserves and production in the world, requires its exports of natural gas to 48 unfriendly countries such as the United States to be settled in rubles.
Dollar hegemony inspires deprecation. The trade war initiated by the Trump administration has not stopped to this day. In order to put the interests of the United States first, Trump demanded to “buy American goods and hire Americans.” The tough policy of the United States has aroused dissatisfaction and concern in many countries, and trade frictions have plummeted the dollar. Musk tweeted: “The problem is very serious. The US policy is too tough, making other countries want to abandon the dollar.” Whether it is launching a trade war against the world, or using US dollar hegemony and SWIFT to sanction other countries, it not only undermines international rules , It also damaged the credibility of the United States, lost the credit of the dollar, and accelerated the process of de-dollarization.
De-dollarization from unilateral to bilateral to multilateral
Currency swaps tumbled on the dollar. As the two most important members of Mercosur, Brazil and Argentina implemented the local currency settlement system for bilateral trade as early as October 2008, which opened the way for the de-dollarization of Mercosur. By the end of 2022, the renminbi has surpassed the euro to become Brazil’s second largest official foreign exchange reserve currency. At the same time, the Sino-Russian trade under the currency swap is advancing by leaps and bounds. In 2022, the Sino-Russian trade will be close to 200 billion US dollars.
Multilateral cooperation ditching the dollar. Not only has a large number of local currency swaps been realized at the bilateral level, the de-dollarization of the Eurasian Economic Union, and the de-dollarization and use of local currencies in the BRICS countries are accelerating. The establishment of the BRICS New Development Bank with a registered capital of US$100 billion has made local currency settlement among member countries more popular. At the same time, the local currencies of developing countries and emerging economies are more widely used, and their determination to de-dollarization is stronger.
In fact, not only is the problem of the US dollar itself unsolvable, but more importantly, the United States does not take into account the obligations of the US dollar as a world currency, but puts the interests of the United States first. A wealth harvester. What’s more serious is that the United States has frequently imposed financial sanctions and “long-arm jurisdiction” on other countries, putting many countries at risk. Therefore, de-dollarization has become de-risking.
Another logic is that the world economic structure has undergone fundamental changes. Since 2008, there has been a “scissors difference” in the global proportions of developed economies and developing economies. The BRICS countries have contributed more than 50% to the world economic growth over the past 10 years. In the past 10 years, the Chinese economy has contributed as much as 38.6% to the world economy. These changes objectively require the diversification of the international monetary system.
Although de-dollarization has been fully launched and has become the general trend, de-dollarization is a long-term process and will not be accomplished overnight.
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责编：王晓秋 ]