by Mario Lettieri and Paolo Raimondi * –
Recently, the Washington government has publicly expressed some strategic economic assessments with more realistic tones than in the past. For the time being they may be just statements, but they are important given the moment of great geopolitical stress. The Secretary of the Treasury, Janet Yellen, former chairman of the Federal Reserve did it.
While not changing foreign policy strategy in the slightest, Yellen admitted in an interview with CNN that “the use of financial sanctions linked to the role of the dollar carries the risk that, over time, it could undermine the hegemony of the dollar.” This “creates a desire on the part of China, Russia, Iran to find an alternative”. Even though, she adds, the dollar is always used as a “global currency” and “we haven’t seen any other country that has the institutional infrastructure that would allow its currency to operate in the same way.”
On the other hand, it is a fact that, outside what we consider the West, sanctions, trade and currencies, starting with the dollar, are seen and judged in different ways.
The Biden administration cannot ignore what is happening in the world of currencies. Even if it is not talked about or there is a tendency to minimize it, the impact of the growing collaboration between the BRICS countries, extended to many other emerging economies, is an ongoing process.
The latest development has been the appointment of the former Brazilian president, Dilma Rousseff, as head of the New Development Bank of the BRICS. At her inauguration in Shanghai, Dilma said: “We need a counter-cyclical mechanism that supports stabilisation. We need to find ways to avoid exchange rate risk and dependence on a single currency like the US dollar. The good news is that many countries choose to trade using their own currencies. The Bank’s strategy for the period 2022-2026 is to make 30% of loans in local currencies“.
Then, in a speech at the John Hopkins School of Advanced International Studies in Washington, Yellen spoke in a practical way about relations between the US and China. “The United States will assert itself when its vital interests are at stake, she said, but we are not trying to decouple our economy from China’s. A complete separation of our economies would be disastrous for both countries and destabilizing for the rest of the world.” She added that “the health of the Chinese and US economies are closely linked. A growing and law-abiding China can be beneficial for the United States.”
Remember that US trade with China surpassed $700 billion in 2021, third of that with Canada and Mexico.
Naturally Yellen repeated that “a constructive and equitable economic relationship with China” is part of the American will to “defend national values and security”. China is urged to maintain fair economic competition. Interestingly, in your speech, you purposely and conveniently never mentioned Taiwan.
She also recalled that, in last year’s meeting between Presidents Biden and Xi, it was agreed to improve communications on the macroeconomics and cooperation on big issues such as climate and debt. “Addressing these issues together would advance the national interests of both our countries,” she said. China is the world‘s largest bilateral creditor, holding half of the credits granted by all governments to developing countries.
We can say that the concern about the debt does not concern only that of poor and developing countries, but also the American one. At the beginning of 2021, in fact, China held Treasury Bonds for 1.095 billion dollars, equal to about 4% of the American national debt. Today it holds a value of 850 billion. While the decrease is partly due to the depreciation of securities, it could signal a stronger future trend.
Many politicians and analysts refer to the balance of power in the world only with respect to politics, military strength, trade or GDP. We don’t understand, and consequently we don’t highlight, the two fundamental aspects of power structures: money and finance. There is therefore the risk of underestimating situations and trends that increase the risks of conflict and even war. At the same time, there is also a tendency to ignore possible positive initiatives, precisely in the international and multipolar monetary and financial field. Collaboration, on the other hand, could help promote joint and peaceful development actions and solutions, such as the creation of a basket of currencies and new rules for financial markets.
* Mario Lettieri, former deputy and undersecretary for the Economy; Paolo Raimondi, economist and university professor.