China's central bank is testing its digital currency in several major Chinese cities. The chairman of US Federal Reserve has recently confirmed that the US Central Bank is working on digital dollar. The State Bank of Pakistan announced in 2019 that it was developing a digital currency. It seems that the popularity of Bitcoin has triggered serious worries of loss of control of the official financial systems among the central bankers around the world. China's substantial lead in digital currency could put it far ahead of the US in the future of global payments and financial settlement. It could eventually displace the US dollar and provide China with the immense global financial power that the US currently enjoys.
Central Bank Digital Currency (CBDC):
What Is a Central Bank Digital Currency (CBDC)? Investopedia defines it as a digital currency that "uses a blockchain-based token to represent the digital form of a fiat currency of a particular nation (or region)". A CBDC is centralized; it is issued and regulated by the country's Central Bank. Unlike decentralized cryptocurrencies like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.
Motivations for such currencies are many, but the key one is to maintain control of the national and global finance. Another worry is that the use of unregulated digital currencies like Bitcoin could enable serious domestic and international crimes. It could also make tax evasion easier and hurt governments' ability to support public expenditure on education, healthcare, physical infrastructure, public safety, national defense and other priorities.
The People’s Bank of China, the Chinese Central Bank, is testing its e-yuan digital currency in Shanghai, Chengdu and other major cities. It has filed more than 100 patent applications for its digital currency. Reports indicate that the experiments are going smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial payment processors such as WeChat Pay and Alipay, the official Chinese version will be equivalent to an account at the central bank with the same guarantee as hard cash, according to The Economist
China is far ahead of of the rest of the world, including the United States in the development of a central bank-backed digital currency (CBDC). This could put it far ahead in the future of global payments and financial settlement. It could eventually displace the dollar and provide China with the immense global financial power that the US currently enjoys.
China has set up a partnership with SWIFT
, the Society for Worldwide Interbank Financial Telecommunications, that manages the global system for cross-border payments, through its digital currency research institute and clearing center. SWIFT is a major vehicle for the United States to enforce its unilateral sanctions on countries like Iran, North Korea and Venezuela. China offers CIPS, cross-border interbank payment system, as an alternative to SWIFT. CIPS has only about 80 member banks worldwide compared to over 11,000 banks using SWIFT.
US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have confirmed last week that they are working on digital dollar as a high-priority project.
US Treasury Secretary Janel Yellen has been quoted by the media as saying: “I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”
A top official of the State Bank of Pakistan, the nation's central bank, announced in April 2019 that the institution aims to issue a digital currency
(Central Bank Digital Currency or CBDC) by 2025, according to media reports. Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments. Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.
More recently, the State Bank of Pakistan launched Raast, a digital payment system
. It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost. Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs.
Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech
) and financial inclusion in the country. It will also promote e-commerce
in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion. Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy.
America's Global Financial Power:
There's a common perception that the United State is abusing its extraordinary financial power to arbitrarily punish countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed
by Peter Beinart:
"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."
Central Bank Digital Currencies (CDBDs) are gaining momentum with the talk of digital yuan and digital dollar. Motivations for such currencies are many, but the key one is to maintain control of the national and global trade and financial systems. If successful, these new currencies and associated payment systems could challenge the global financial power of the United States and fundamentally transform banking as we know it.
We should peg PKR to Digital Yuan. So that trade and development moves in tandem with China. Team IK should also push for full convertibility of PKR with RMB.
#China Charges Ahead With a National #Digital Currency. Some economists said China’s digital currency would also make it easier for the renminbi to compete with the #US dollar as a global #currency because it can move internationally with fewer barriers. https://www.nytimes.com/2021/03/01/technology/china-national-digital-currency.html?smid=tw-share
The electronic Chinese yuan is now being tested in cities such as Shenzhen, Shanghai and Beijing. No other major power is as far along with a homegrown digital currency.
Annabelle Huang recently won a government lottery to try China’s latest economics experiment: a national digital currency.
After joining the lottery through the social media app WeChat, Ms. Huang, 28, a business strategist in Shenzhen, received a digital envelope with 200 electronic Chinese yuan, or eCNY, worth around $30. To spend it, she went to a convenience store near her office and picked out some nuts and yogurt. Then she pulled up a QR code for the digital currency from inside her bank app, which the store scanned for payment.
“The journey of how you pay, it’s very similar” to that of other Chinese payments apps, Ms. Huang said of the eCNY experience, though she added that it wasn’t quite as smooth.
China has charged ahead with a bold effort to remake the way that government-backed money works, rolling out its own digital currency with different qualities than cash or digital deposits. The country’s central bank, which began testing eCNY last year in four cities, recently expanded those trials to bigger cities such as Beijing and Shanghai, according to government presentations.
The effort is one of several by central banks around the world to try new forms of digital money that can move faster and give even the most disadvantaged people access to online financial tools. Many countries have taken action as cryptocurrencies such as Bitcoin, which has recently soared in value, have become more popular.
But while Bitcoin was designed to be decentralized so that no company or government could control it, digital currencies created by central banks give governments more of a financial grip. These currencies can enable direct handouts of money that expire if not used by a particular date and can make it easier for governments to track financial transactions to stamp out tax evasion and crack down on dissidents.
Over the last 12 months, more than 60 countries have experimented with national digital currencies, up from just over 40 a year earlier, according to the Bank for International Settlements. The countries include Sweden, which is conducting real-world trials of a digital krona, and the Bahamas, which has made a digital currency, the Sand Dollar, available to all citizens.
In contrast, the United States has moved slowly and done just basic research. At a New York Times event last week, Treasury Secretary Janet L. Yellen indicated that might change when she said an American digital currency was “absolutely worth looking at” because it “could result in faster, safer and cheaper payments.”
#China, #Pakistan reiterate commitment to #infrastructure development plan on the 70th anniversary of diplomatic ties & strong mutual friendship. So far, 46 of 70 planned #CPEC projects have been completed, with a combined investment of US$25.4 billion. https://www.scmp.com/news/china/diplomacy/article/3123925/china-pakistan-reiterate-commitment-infrastructure-development?utm_source=Twitter&utm_medium=share_widget&utm_campaign=3123925
China and Pakistan should continue to support their multibillion-dollar infrastructure development programme, Chinese Foreign Minister Wang Yi said on Tuesday, despite the scheme becoming a focus for regional tensions and concerns about its financial viability.
“We must persist in creating a mutually beneficial and win-win situation,” the foreign ministry quoted Wang as saying during a video chat with his Pakistani counterpart, Makhdoom Shah Mahmood Qureshi. The call was made to mark the 70th anniversary of the countries establishing diplomatic relations.
“The two sides should firmly promote the construction of the China-Pakistan Economic Corridor [CPEC], creating new growth points in areas including industry, agriculture, science and technology, people’s livelihoods and third-party cooperation, further enhancing Pakistan’s sustainable development capability,” Wang said.
Launched in 2013, the CPEC is an offshoot of the Belt and Road Initiative – Chinese President Xi Jinping’s pet project to boost trade and infrastructure links across Asia and beyond – and comprises a network of roads, railways, ports, power plants, oil and gas pipelines and optical fibre cables.
Though often valued at US$62 billion, only about US$25 billion worth of CPEC projects have so far been developed.
Wang said that 46 of 70 planned CPEC projects had been completed, with a combined investment of US$25.4 billion. The scheme had achieved “satisfactory results” and created job opportunities in Pakistan, he said
Qureshi said Pakistan fully supported China’s belt and road plan and described the CPEC as a prime example of its “high-quality development”, according to a report by Chinese Communist Party mouthpiece People’s Daily.
The CPEC has strategic significance for China as it provides an alternative route for importing oil and gas from the Middle East. But Delhi is worried that Gwadar Port – a CPEC project on Pakistan’s Arabian Sea coast – will be used as a base for the Chinese navy.
Wang said China and Pakistan should expand their strategic partnership and uphold multilateralism.
“We should firmly hold that all countries have equal status regardless of their size while opposing hegemonism and power politics,” he said.
“We should deepen political mutual trust. Both sides should continue to firmly support each other on issues involving each other‘s core interests and major concerns.”
Global Trends 2024 "A More Contested World": Why #US #Spy Agencies Say the Future Is Bleak as Competition with #China Ratchets up in the Next 20 years. #Climatechange, #technology, #pandemics and #financial crises will pose big challenges for the world. https://www.nytimes.com/2021/04/15/opinion/global-trends-intelligence-report.html?smid=tw-share
The world envisioned in the 144-page report, ominously subtitled “A More Contested World,” is rent by a changing climate, aging populations, disease, financial crises and technologies that divide more than they unite, all straining societies and generating “shocks that could be catastrophic.” The gap between the challenges and the institutions meant to deal with them continues to grow, so that “politics within states are likely to grow more volatile and contentious, and no region, ideology, or governance system seems immune or to have the answers.” At the international level, it will be a world increasingly “shaped by China’s challenge to the United States and Western-led international system,” with a greater risk of conflict.
Here’s how agencies charged with watching the world see things:
“Large segments of the global population are becoming wary of institutions and governments that they see as unwilling or unable to address their needs. People are gravitating to familiar and like-minded groups for community and security, including ethnic, religious, and cultural identities as well as groupings around interests and causes, such as environmentalism.”
“At the same time that populations are increasingly empowered and demanding more, governments are coming under greater pressure from new challenges and more limited resources. This widening gap portends more political volatility, erosion of democracy, and expanding roles for alternative providers of governance.”
“Accelerating shifts in military power, demographics, economic growth, environmental conditions, and technology, as well as hardening divisions over governance models, are likely to further ratchet up competition between China and a Western coalition led by the United States.”
“At the state level, the relationships between societies and their governments in every region are likely to face persistent strains and tensions because of a growing mismatch between what publics need and expect and what governments can and will deliver.”
Experts in Washington who have read these reports said they do not recall a gloomier one. In past years, the future situations offered have tilted toward good ones; this year, the headings for how 2040 may look tell a different story: “Competitive Coexistence,” “Separate Silos,” “Tragedy and Mobilization” or “A World Adrift,” in which “the international system is directionless, chaotic, and volatile as international rules and institutions are largely ignored by major powers like China, regional players and non-state actors.”
There is one cheery scenario thrown in, “Renaissance of Democracies,” in which the United States and its allies are leading a world of resurgent democracies, and everybody is getting happier. Its apparent purpose is to show that people could, in principle, turn things around. But nothing in the report suggests it is likely.
The gloom, however, should not come as a surprise. Most of what Global Trends provides are reminders of the dangers we know and the warnings we’ve heard. We know that the world was ill prepared for the coronavirus and that the pandemic was grievously mishandled in most parts of the world, including the United States. We know the Arctic caps are melting at a perilous rate, raising sea levels and threatening dire consequences the world over. We know that for all the grand benefits of the internet, digital technology has also unleashed lies, conspiracies and distrust, fragmenting societies and poisoning political discourse. We know from the past four years what polarized and self-serving rule is like. We know that China is on the rise, and that it is essential to find a manageable balance between containment and cooperation.
China is now applying calculated doses of pain to shock Westerners into realizing the old, #American-led order is ending. #Chinese foreign policy chief lectured American diplomats in #Alaska. Then #China sanctioned #British, #Canadian & #EU politicians https://www.economist.com/china/2021/04/03/china-is-betting-that-the-west-is-in-irreversible-decline
Its gaze fixed on the prize of becoming rich and strong, China has spent the past 40 years as a risk-averse bully. Quick to inflict pain on smaller powers, it has been more cautious around any country capable of punching back. Recently, however, China’s risk calculations have seemed to change. First Yang Jiechi, the Communist Party’s foreign-policy chief, lectured American diplomats at a bilateral meeting in Alaska, pointing out the failings of American democracy. That earned him hero status back home. Then China imposed sanctions on British, Canadian and European Union politicians, diplomats, academics, lawyers and democracy campaigners. Those sweeping curbs were in retaliation for narrower Western sanctions targeting officials accused of repressing Muslims in the north-western region of Xinjiang.
China’s foreign ministry declares that horrors such as the Atlantic slave trade, colonialism and the Holocaust, as well as the deaths of so many Americans and Europeans from covid-19, should make Western governments ashamed to question China’s record on human rights. Most recently Chinese diplomats and propagandists have denounced as “lies and disinformation” reports that coerced labour is used to pick or process cotton in Xinjiang. They have praised fellow citizens for boycotting foreign brands that decline to use cotton from that region. Still others have sought to prove their zeal by hurling Maoist-era abuse. A Chinese consul-general tweeted that Canada’s prime minister was “a running dog of the us”.
Such performance-nationalism is watched by Western diplomats in Beijing with dismay. Envoys have been summoned for late-night scoldings by Chinese officials, to be informed that this is not the China of 120 years ago when foreign armies and gunboats forced the country’s last, tottering imperial dynasty to open the country wider to outsiders. Some diplomats talk of living through a turning-point in Chinese foreign policy. History buffs debate whether the moment more closely resembles the rise of an angry, revisionist Japan in the 1930s, or that of Germany when steely ambition led it to war in 1914. A veteran diplomat bleakly suggests that China’s rulers view the West as ill-disciplined, weak and venal, and are seeking to bring it to heel, like a dog.
In Washington and other capitals it is not hard to hear voices suggesting that China is making rash, clumsy mistakes. Surely China sees that it is souring public opinion across the West, they murmur. There is puzzlement about how China now views its recent draft accord with the European Union, the Comprehensive Investment Agreement, which it had appeared so eager to conclude. That pact’s ratification by the European Parliament is now on ice, and possibly entombed in permafrost, as a result of China’s sanctions on several Euro-legislators.
Globally, the value of all outstanding cryptocurrency has jumped to about $2.4 trillion — or more than the approximately $1.2 trillion of United States currency in circulation worldwide — from about $200 billion two years ago.
As Scrutiny of Cryptocurrency Grows, the Industry Turns to K Street
Companies behind digital currencies are rushing to hire well-connected lobbyists, lawyers and consultants as the battle over how to regulate them intensifies.
When federal regulators late last year accused one of the world’s most popular cryptocurrency platforms of illegally selling $1.38 billion worth of digital money to investors, it was a pivotal moment in efforts to crack down on a fast-growing market — and in the still-nascent industry’s willingness to dive deeply into the Washington influence game.
The company, Ripple Labs, has enlisted lobbyists, lawyers and other well-connected advocates to make its case to the Securities and Exchange Commission and beyond in one of the first big legal battles over what limits and requirements the government should set for trading and using digital currency.
Ripple has hired two lobbying firms in the past three months. It has retained a consulting firm staffed with former aides to both Hillary Clinton and former President Donald J. Trump to help it develop strategy in Washington. And to defend itself against the S.E.C., it hired Mary Jo White, a former chairwoman of the commission during the Obama administration.
Ripple is just one of a long list of cryptocurrency companies scrambling for influence in Washington as the Biden administration begins setting policy that could shape the course of a potentially revolutionary industry that is rapidly moving into the mainstream and drawing intensifying attention from financial regulators, law enforcement officials and lawmakers.
“There is a tectonic shift underway,” Perianne Boring, the president of the Chamber of Digital Commerce, a cryptocurrency lobbying group, told other industry lobbyists, executives and two House lawmakers who serve as industry champions, during a virtual gathering last month. “If we don’t start planning and taking action soon, we have everything to risk.”
So far, cryptocurrency has been a highly volatile investment, but it is already starting to alter the way individuals, companies and even some central banks do business. Firms like Ripple, which is based in San Francisco, run cryptocurrency platforms that allow customers to make nearly instant global payments through a system that operates largely outside government monetary networks.
The House this month passed a bill backed by industry lobbyists to create a working group of federal regulators, industry executives, investor protection groups and others to examine possible frameworks for a regulatory system.
“We need to get the big prize done,” Representative Darren Soto, Democrat of Florida and a member of the Congressional Blockchain Caucus, a group of lawmakers working with the industry to help promote cryptocurrencies, told the industry conference last month. “Which is the statutes and jurisdiction and definitions to create that certainty, to really let blockchain and cryptocurrency flow and improve in the United States.”
#China emerges as the the biggest global #trading nation, eclipsing the #UnitedStates. How will it affect the #US #currency and #American dominance of the international #financial system? #economy #trade #finance #investment https://www.worldstopexports.com/chinas-top-import-partners/
China Eclipses U.S. as Biggest Trading Nation
February 10, 2013
China surpassed the U.S. to become the world’s biggest trading nation last year as measured by the sum of exports and imports of goods, official figures from both countries show.
U.S. exports and imports of goods last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s trade in goods in 2012 amounted to $3.87 trillion.
China’s growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.’s Jim O’Neill.
“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe.”
When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis. The U.S. recorded a surplus in services of $195.3 billion last year and a goods deficit of more than $700 billion, according to BEA figures released Feb. 8. China’s 2012 trade surplus, measured in goods, totaled $231.1 billion.
The U.S. economy is also double the size of China’s, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China’s totaled $7.3 trillion. China’s National Bureau of Statistics reported Jan. 18 that the country’s nominal gross domestic product in 2012 totaled 51.93 trillion yuan ($8.3 trillion).
“It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. The increase isn’t all the result of an undervalued yuan fueling an export boom, as Chinese imports have grown more rapidly than exports since 2007, he said.
Renowned British #economist #Keynes warned the world in `1924 against using #economic #sanctions. Both the deterrent and the compellent effects of #US sanctions have fallen dramatically amid rampant overuse. #Afghanistan #Iran #Russia #Syria #Pakistan https://www.theguardian.com/commentisfree/2022/jan/20/keynes-warned-the-world-against-using-economic-sanctions-his-alternative-is-worth-considering
Promoting economic stimulus at home while enforcing deprivation abroad is a self-defeating way to seek world stability
Nicholas Mulder is assistant professor of history at Cornell University and the author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (New Haven: Yale University Press, 2022)
he United States has come to rely on economic sanctions more than ever before. Following its retreat from Kabul in August, Washington has maintained economic pressure on the Taliban. The treasury’s freezing of $9.5bn in Afghan state assets has left that impoverished country facing starvation this winter. Two weeks ago, US officials warned Iran, already under heavy economic pressure, that it will face “snapback” sanctions unless Tehran restrains its nuclear ambitions.
Most prominent of all is the sanctions threat that the Biden administration issued against Russia last month. In the face of a large Russian military buildup on the borders of Ukraine, Joe Biden announced on 8 December that Vladimir Putin will face “severe consequences, economic consequences like none he’s ever seen or ever have been seen” if he escalates into open conflict.
In all three cases, advocates of economic pressure argue that sanctions will deter aggressive action and compel better behavior. But the reality is that both the deterrent and the compellent effect of US sanctions have fallen dramatically amid rampant overuse.
Sanctions were created as an antidote to war. Today, they have become an alternative way of fighting wars
Iran has been under US sanctions on and off since 1979. It has such longstanding experience resisting external pressure that further coercion is unlikely to work. Putin’s Russia has adapted to western sanctions imposed since 2014 by building up large financial reserves, promoting agricultural self-sufficiency, and designing alternative payments systems.
Western supporters of sanctions now face a gridlock that is in part of their own making. Instead of cooling tensions, their implacable and impulsive resort to the economic weapon has aggravated the very conflicts that it is meant to resolve.
Sanctions were created as an antidote to war. Today, they have become an alternative way of fighting wars, perpetuating conflicts but not defusing them. To understand how the policy of economic pressure has reached this impasse, it helps to go back to its historical origins.
A century ago, in the aftermath of the first world war, sanctions were created as a mechanism to prevent future conflict. During the war, the allies imposed a devastating blockade on their enemies, Germany and Austria-Hungary. This kind of economic war against civilians was not a new phenomenon. It dated back to antiquity and played an important part throughout the 19th century, from the Napoleonic wars to the American civil war.
More evidence of the exorbitant burden the US dollar creates for the US economy? This interesting paper by
argues that unfettered capital inflows into the US reduce American productivity growth.
The reason, they say, is because, paradoxically, cheap access to foreign capital "leads to a contraction in economic activity in tradable sectors, which are the engine of growth in our economies."
Since the late 1990s, the United States has received large capital flows from developing countries - a phenomenon known as the global saving glut - and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods, inducing a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. This effect, which we dub the global financial resource curse, can help explain why the global saving glut has been accompanied by subdued investment and growth, in spite of low global interest rates.
JEL Codes: E44, F21, F41, F43, F62, O24, O31.
Keywords: global saving glut, global productivity growth, international financial integration, capital flows, U.S. productivity growth slowdown, low global interest rates, Bretton Woods II, export-led growth.
∗Gianluca Benigno: LSE, New York Fed and CEPR; gi
Could #SWIFT be used to sanction #Russia? Swift as a weapon could erode the #dollar-dominated global financial system, including by fostering alternatives to Swift being developed by Russia and the world’s second largest economy, #China. #Trade https://www.wsj.com/articles/swift-banking-system-sanctions-biden-11645745909?st=id5oym5gvi93hv6&reflink=desktopwebshare_twitter via @WSJ
Russia’s assault on Ukraine triggered a surge of calls for Western allies to completely sever Russia from the global financial system by disconnecting it from the so-called Swift global payment system. Fear in places like the U.S. and Germany of potential collateral damage have put the idea on hold for now.
What is Swift?
The Society for Worldwide Interbank Financial Telecommunication, or Swift, is the financial-messaging infrastructure that links the world’s banks. The Belgium-based system is run by its member banks and handles millions of daily payment instructions across more than 200 countries and territories and 11,000 financial institutions. Iran and North Korea are cut off from it.
Why is Swift important for countries, including Russia?
Cross-border financing is critical to every part of the economy, including trade, foreign investment, remittances and the central bank’s management of the economy. Disconnecting a country, in this case Russia, from Swift would hit all of that.
Who is advocating for such a move?
U.K. Prime Minister Boris Johnson has lobbied other Group of Seven members to flip the switch. Other proponents include countries along the European Union’s border with Russia and some members of Congress, including California Democratic Rep. Adam Schiff, chairman of the House Intelligence Committee. The move, they argue, would help cripple Russia’s economy in a way that more targeted sanctions can’t.
Why are other countries resisting it?
Critics say there could be economic blowback, not just in Europe, which has deep trade ties and relies heavily on Russia’s natural gas exports, but also the rest of the world. Some former U.S. officials say the move could severely hurt Russia’s economy, but also harm Western business interests such as the major oil companies. President Biden, while ruling it out for now, said the option isn’t off the table completely.
At an estimated $1.7 trillion last year, Russia’s gross domestic product makes it the 12th largest economy in the world. Even if the global economy wasn’t hobbled by a three-year pandemic, rising inflation, supply chain disruptions and escalating East-West political tensions, losing 2% of global GDP and one of the world’s top oil exporters would inflict severe damage to it.
Additionally, using Swift as a weapon could erode the dollar-dominated global financial system, including by fostering alternatives to Swift being developed by Russia and the world’s second largest economy, China. That could undermine Western power, especially the diplomatic leverage that sanctions offer.
What have Western nations done instead?
Besides halting a new natural gas pipeline and hurting Russia’s ability to raise debt, Western sanctions so far have blacklisted many of Russia’s biggest banks, affecting the majority of the country’s banking sectors assets. Those sanctions ban transactions with the targeted institutions, cutting off their access to U.S. dollars and financing.
Why would cutting Swift off be different?
President Biden said that with Thursday’s sanctions, allied efforts essentially amount to the same things as cutting Russia off from Swift. But there are differences.
Swift is a bludgeon in the economic warcraft arsenal compared with targeted sanctions that provide precision and diplomatic flexibility for policy makers.
China’s Cross-Border International Payments System could give Russia a lifeline and accelerate de-dollarization
By DAVID P GOLDMAN
Washington’s new sanctions against Russia were no match for President Biden’s rhetoric, leaving out the most obvious measure that the United States might take to hurt Moscow, namely exclusion from the SWIFT international payments system.
Banks conduct virtually all hard-currency transactions via SWIFT, or the Society for Worldwide Interbank Financial Telecommunication. But a new Chinese alternative might allow Russia to conduct most of its trade in yuan rather than dollars.
China’s Cross-Border International Payments System (CIPS), founded in 2015, is still under development and includes only 80 foreign banks. But there is no reason in principle that CIPS can’t substitute for SWIFT. And if Russia successfully shifts its trade payments out of the dollar system, the blow to American prestige and power would be enormous.
De-dollarization of trade is under debate in Western Europe. Germany’s Manager Magazine wrote on February 14, “Exclusion from the international payment system SWIFT is considered the sharpest sword that the West could wield as an economic sanction against Russia.
“However, it is a double-edged sword: the economic consequences would not only be serious in Russia, but also in Western Europe. In addition, the decoupling of Russia and China from the US dollar would be accelerated. Both countries are already working on competing payment systems.”
Russia also has developed an interbank messaging system, which now covers about 20% of domestic financial payments.
China’s yuan has advantages and disadvantages as a dollar substitute. It has gained about 8% against the US dollar since the Covid recession began in early 2020.
China’s consumer inflation rate stands around 1% year-on-year vs. 7.5% in the US, and the yuan to some extent has acted as a hedge against dollar inflation, as I wrote on February 17.
Europe relies on Swift to pay Russian producers for 40% of its natural-gas supply. Fear that Russia's natural gas exports could be frozen sent Europe's natural gas prices shooting up as high as $40 per million BTUs vs. about $5 per million in the natural-gas-rich U.S.
If sustained, such prices would plunge European economies into recession, as consumers struggled to pay bills and manufacturers were forced to shutter their factories.
Germany has already halted certification of the Nord Stream 2 natural gas pipeline from Russia as the Ukraine invasion loomed. It also said it'll take steps to wean itself off Russian gas over time. But pressure is building on Germany to accede to harsher sanctions.
There would still be potential workarounds, if Russia is cut off from Swift. BCA Research said it expects Germany to find an alternate way of transmitting payment instructions to keep energy flowing.
Russia might use China's much smaller CIPS messaging system for conducting regional commerce, driving the countries closer together. Still, it's not clear how effective any of these alternatives will be, so risk will rise of price increases or supply disruptions for a number of key commodities.
Russia's Other Riches
Russia's economy is "basically a big gas station," but otherwise of little global importance, Jason Furman, top economic advisor to President Obama, said recently.
For S&P 500 companies, Russia only amounts to 0.1% of total sales, according to a Bank of America report.
Yet Russia controls big enough slices of key commodity markets beyond oil and gas to roil global supply chains that are still trying to recover from Covid disruptions.
Russia accounted for 6% of global aluminum and 5% of nickel supply in 2021, according to the Cru Group's commodity market research.
On Thursday, aluminum prices rose more than 3% to hit an all-time high $3,450 per ton, while nickel reached a decade-plus high around $25,000 per ton.
Inventories of base metals are already extremely low, JPMorgan said in a note to clients. That leaves "very little additional cushion for further supply disruptions — either from Russia directly or via higher-for-longer gas and power prices," the firm's analysts added.
Russia also controls 35% of palladium and 10% of platinum supply. Those precious metals are used in catalytic converters to reduce auto emissions.
The U.S. neon supply, key in the advanced lithography chipmaking process, comes almost entirely from Russia and Ukraine, says the Techcet research and consulting firm.
With nearly 25% of the global wheat supply between Russia and Ukraine, the invasion also could exacerbate food inflation.
For the U.S. and its allies to target these crucial commodities with sanctions would be shooting themselves in the foot.
Ukraine Invasion Timing
The West will sanction less-essential Russian exports, like diamonds. Still, Russia's major income streams will remain intact, as Putin surely counted on. The surge in oil prices and global inflation pressures mean Putin has invaded Ukraine at the most opportune time.
"Putin was ready for this crisis," said Lori Esposito Murray, president of The Conference Board's public policy arm, in a podcast this week. "He's been planning this for a while."
Murray highlighted the $630 billion in currency reserves that Russia has built up to buttress its economic foundations for war.
That's not to say Russians won't pay a steep price from the Ukraine invasion and sanctions. Biden noted Thursday that the ruble had fallen to an all-time low, while Russian borrowing rates soared. Amid currency depreciation, a recession in Russia looks like a given.
Russia Sanctions Could Help Undermine Dollar’s Global Status
By George Pearkes of Atlantic Council
Aggressive use of dollar weaponization has been signaled repeatedly by US policymakers to meet US goals in the current dispute over Ukraine. Though this would severely impact Russia today, negative feedback to dollar sovereignty will be measured in decades rather than years — and will inevitably arrive.
Given the power of dollar sovereignty, it feels inevitable that it would be turned into a weapon in a world that is deeply financialized. Global debt – or, equally accurate, global interest bearing assets – topped $300 trillion in 2021 according to the Institute for International Finance. In that context, the ability to restrict access to financial markets is vastly more powerful than it has been historically.There are restraints on the use of weaponized dollar sovereignty against Russia. A maximalist weaponization of the dollar would have a large enough impact on the Russian or other adversary’s economy that standards of living would plummet. While not as overt as a bombing campaign, the effects of a fully weaponized dollar would be severe enough that a bombing campaign would be an apt comparison for the impact on the civilian population. It’s not clear to what degree American policymakers are willing to impose pain on Russia’s civilian population, but it seems unlikely the most aggressive possible use of dollar weaponization and the cost to ordinary Russians it would impose would not create negative feedbacks to the United States.Another obvious restraint is domestic American interest groups. US companies may be users of Russian natural gas, aluminum, or other exports either in the United States or at overseas production facilities. These interests could dissuade US policymakers from using the dollar as a weapon.The weaponized dollar is already a fact of life in global affairs. The governments of Cuba, Iran, North Korea, and Venezuela can all attest to that fact, as can their civilian populations. In all four countries, dollar sovereignty has been weaponized in a contemporary context. Deeper historical examples abound in Latin America and other parts of the world. At a smaller scale, the wide range of sanctions activity tracked by the Atlantic Council’s Sanctions Dashboard are forms of dollar weaponization as well.It’s only a matter of time before the United States attempts a more aggressive and maximalist use of financial warfare. Whether Russia will be the target after an invasion of Ukraine remains to be seen. However, at least 40 Senators have signaled they favor that course, and the precedent for similar actions from the United States is well established. On January 19th, President Biden said “If they invade, they’re going to pay. Their banks will not be able to deal in dollars”, a reference either to just one of the wide range of dollar weaponization strategies that exist under current law and are being discussed in Congress. While there is no current contender to replace the dollar as the dominant currency in global trade and finance, the weaponization of dollar sovereignty could catalyze a push for a new currency hegemony, or perhaps even a multi-currency global reserve system. Game theorists would call aggressive dollar weaponization for narrow national objectives a “non-credible” threat: a threat to do something a rational actor wouldn’t do, because ultimately it hurts the actor. By using the power of dollar sovereignty, dollar sovereignty risks endangering the reserve status which allows it to be weaponized.Over the foreseeable future of the next decade or so, dollar weaponization will not endanger the US dollar’s unique position as the global reserve currency. The various network effects outlined previously make a near-term shift away from the dollar extraordinarily unlikely. Unfortunately for US policymakers, the long-term is less certain.
FT columnist Gillian Tett recently wrote there was “concern that some emerging market funds will dump non-Russian assets to cover losses on frozen Russian holdings,” amid talk that some overleveraged hedge funds had been wrongfooted and “memories of the 1998 collapse of Long-Term Capital Management are being revived.”
Economic historian Adam Tooze has commented that Russian reserve accumulation, derived from its oil and gas sales, is a source of funding in Western markets and “part of complex chains of transactions that may now be put in jeopardy by the sanctions.”
Longer-term concerns about the future direction of the international monetary system and the world economy are also being raised. An editorial in the Economist headlined “A new age of economic conflict” said the implications of the sanctions on Russia were “huge” and marked a “new era of high-risk economic warfare that could further splinter the world economy.”
One issue that has been raised is that the sanctions, which demonstrate the enormous financial power of US imperialism because the dollar functions as the world’s major currency, will lead to a bipolar financial world—one based on the dollar and the other on the Chinese renminbi.
There is no realistic prospect that the renminbi can assume anything like the dollar’s global role given the fact that the Chinese financial system is controlled by the state while US markets, by contrast, are open and liquid. Furthermore, at present the renminbi is used to finance only 2 percent of world trade. While there are predictions it could rise to 7 percent in the next few years, it is dwarfed by the position of the dollar which finances 59 percent.
However, as the Economist noted, the sanctions will have long-term effects, the implications of which were “daunting.”
“The more they are used, the more countries will seek to avoid relying on Western finance. That would make the threat of exclusion less powerful. It would also lead to a dangerous fragmentation of the world economy. In the 1930s, a fear of trade embargoes was associated with a rush to autarky and economic spheres of influence.”
While the editorial did not make the point, this fracturing was one of the economic driving forces behind the eruption of World War II.
China will no doubt be carefully examining the implications of the Russian sanctions because in a war, or even a conflict over Taiwan or some other issue, the US and Western powers could freeze its $3.3 trillion of foreign reserves. Other countries, such as India, “may worry they are more vulnerable to Western pressure,” the Economist said.
An article by Wall Street Journal writer Jon Sindreu said the sanctions on Russia, which showed that reserves accumulated by central banks can simply be taken away, raised the question of “what is money?”
He noted that, in the wake of the Asian financial crisis of 1997–98, scared developing countries sought to protect themselves by accumulating foreign currency holdings, raising them from less than $2 trillion to a record of $14.9 trillion in 2021.
“Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing,” Sindreu said.
In the 19th century and into the first part of the 20th, the world financial system operated on the gold standard. This system collapsed with the eruption of World War I and attempts to restore it in the 1920s failed, leading to the breakdown of international trading and financial relations in the 1930s and a return to barter in some cases.
Powell Says War May Speed China Moves to Insulate Against Dollar
Fed chief says China has been working on currency matters
Powell says Ukraine war may serve as accelerant to China moves
Powell: Fed Needs to Be 'Nimble' Amid Ukraine Crisis
Federal Reserve Chair Jerome Powell said the Ukraine war could have the effect of accelerating China’s moves to develop alternatives to the current dollar-dominated international payments infrastructure.
Powell was questioned Thursday in a Senate Banking Committee hearing on how China might view the U.S.-led efforts to isolate Russia’s economy, especially by damaging its ability to use the dollar.
#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.
#India's #payment giant #NPCI has #SWIFT alternative for 32 million #NRIs. UPI (Unified Payment Infrastructure) linkage with other nations will anchor #trade, #travel, #remittance flows between countries & lower the cost of cross-border transactions https://www.livemint.com/news/india/payment-giant-npci-has-swift-alternative-for-32-million-indian-expats-11657074479843.html?utm_source=share&utm_medium=social&utm_campaign=share_via_web
The company that built India’s digital payments backbone plans to make it cheaper and easier for the nation’s 32 million expatriates to bring their money home.
Indians overseas remitted $87 billion last year, the biggest inflow for any country tracked by the World Bank. The remittances market, where it costs $13 on average to send $200 across borders, is ripe for disruption, according to Ritesh Shukla, chief executive officer of NPCI International Payments Ltd.
“We have displaced cash in India to a large extent and are now looking to repeat the success in cross-border corridors," said Shukla. “Overseas Indians can use our rails to remit money inwards straightway into their bank accounts, and for the markets where Indians travel frequently, we will build acceptance for our instruments."
Successful overseas forays by NCPI would give India a home-grown alternative to SWIFT, the Belgium-based cross-border payment system operator, though Shukla stressed that the objective was not to displace existing platforms. About 330 banks and 25 apps -- including Alphabet Inc.’s Google Pay and Meta Platform Inc.’s WhatsApp -- share NCPI’s unified payment interface, which has helped make instantaneous digital transactions a $3 trillion market in India.
NPCI is in the process of connecting the UPI platform to systems in other countries to replicate its domestic success. It is negotiating collaborations with governments, fintech companies and service providers around the world, aiming to reduce transaction costs and enable more small-ticket transactions, Shukla said.
“This is going to take the payments world by storm," said Mayank Goyal, CEO of moneyHop, a cross-border banking app that lets users make international remittances through the SWIFT network. The company will seek to integrate UPI rails into the app as it makes cross-border payments easier, Goyal said.
UPI’s linkage with overseas nations will further anchor trade, travel and remittance flows between the countries and lower the cost of cross-border remittances, the Reserve Bank of India said in a report.
U.S. Lawmakers Look to Digital Dollar to Compete With China
The Federal Reserve is considering the idea, but in no rush to join a digital-assets space race
Lawmakers are pushing the Federal Reserve to move swiftly toward issuing a digital dollar, to combat steps from China and others they say could one day threaten the U.S. status as the global reserve currency.
The bipartisan group of lawmakers, including Reps. Maxine Waters (D., Calif.) and French Hill (R., Ark.), has sought for the U.S. to counter global competitors launching digital versions of their currencies. The House Financial Services Committee, which both serve on, might vote on related legislation as soon as next month.
Ms. Waters has framed competition over new forms of central-bank money as “a new digital assets space race.” The Biden administration and the Fed don’t share a sense of urgency.
Fed Chairman Jerome Powell has indicated the central bank isn’t in a rush, as it confronts inflation and a slowing economy. Mr. Powell has said it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role. He has also said the Fed won’t issue a digital dollar without support from elected officials. The White House has largely remained neutral on a digital dollar, with President Biden ordering a study to determine its implications for issues such as economic growth and stability.
Some in Congress say the U.S. is already behind the curve. Among the Group of 20 major economies, 16 are in the development or pilot phase of a digital currency, according to the Atlantic Council, a Washington think tank. The European Central Bank, on behalf of countries including Germany and France, is exploring designs for a digital euro and preparing to launch a test pilot.
Mr. Hill, the Arkansas Republican, said his concerns were animated in part by China, which began real-world testing of its own central-bank–issued digital currency in 2020. In an interview, he said China’s lending practices in the developing world could make it easier for the country to promote international uses of its digital currency—a potential threat to the dollar-based global economy.
“We should be concerned about China’s predatory practices,” he said.
Chinese authorities haven’t ruled out international use of the e-CNY, the official name for the country’s digital currency, but say it is designed for small-scale domestic use by consumers.
Analysts are looking for signs that the People’s Bank of China will take concrete steps to join with central banks elsewhere to make it possible to use digital currencies between countries. The bottom line is that Beijing is uncomfortable with the outsize role the U.S. dollar plays in global commerce and in particular fears being frozen out of the dollar-based financial system, such as in response to a conflict over Taiwan.
International transactions in a digitized currency created by China, the thinking goes, could be a defensive weapon in such circumstances because they would happen beyond the reach of the U.S.
Pakistan launches new laws to expedite CBDC launch by 2025
The State Bank of Pakistan signed in new laws for Electronic Money Institutions — non-bank entities offering digital payment instruments — to ensure the timely issuance of a CBDC in the next three years.
Regulators worldwide see central bank digital currencies (CBDCs) as a way to enhance fiat capabilities by inheriting the financial prowess of technologies that power cryptocurrencies. Pakistan joined this list by announcing new regulations to ensure the launch of an in-house CBDC by 2025.
The State Bank of Pakistan (SBP) signed in new laws for Electronic Money Institutions (EMIs) — non-bank entities offering digital payment instruments — to ensure the timely issuance of a CBDC in the next three years. The World Bank helped Pakistan design the new regulations, according to local media Arab News.
In addition to timeline adherence for the CBDC launch, the regulations warrant preventive measures against money laundering and terror financing while considering consumer protection and reporting requirements.
The state bank, SBP, will issue licenses to EMIs for CBDC issuance. During the announcement, Finance Minister Asad Umar stated that using EMIs in promoting the digital economy will safeguard financial institutions from cybersecurity threats. Deputy Governor of SBP Jameel Ahmad envisions curbing fiat-induced corruption and inefficiency through CBDCs. He said:
The commencement of a speedy regulatory environment places Pakistan among the nearly 100 countries that are actively involved in researching and launching CBDC initiatives.
Neighboring country India also recently joined the race to launch a home-grown CBDC. On Nov. 22, The Reserve Bank of India (RBI) announced an ambitious plan to launch a retail CBDC pilot by the end of 2022.
Indian central bank, RBI, is reportedly in the final stage of preparing the retail digital rupee pilot rollout, which will be initially tested among 10,000 to 50,000 users of participating banks.
#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."
#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."
#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."
Money and Empire: Charles P. Kindleberger and the Dollar System
By Perry Mehrling
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.
Pakistan approves blockchain-based national eKYC banking platform
In other crypto-related developments out of the MENA region, the Pakistan Banks’ Association (PBA) has signed off on the development of a blockchain-based Know Your Customer (KYC) platform with the goal of strengthening the country’s Anti-Money Laundering (AML) capabilities in a bid to counter the financing of terrorism.
According to a report from the Daily Times, the PBA, which is comprised of 31 traditional banks operating in Pakistan, signed off on the project to develop Pakistan’s first blockchain-based national eKYC banking platform on Thursday at the behest of the State Bank of Pakistan (SBP), the country’s central bank.
Included in the list of member banks are multiple international behemoths such as the Industrial and Commercial Bank of China, Citibank and Deutsche Bank.
The new blockchain-based eKYC platform – dubbed “Consonance” – will also reportedly improve operational efficiencies, which are primarily aimed at improving customer experience during onboarding.
Consonance will be developed by the Avanza Group, and the platform will be used by member banks to standardize and exchange customer data via a decentralized and self-regulated network.
India's oil deals with Russia dent decades-old dollar dominance | Reuters
India in the last year displaced Europe as Russia's top customer for seaborne oil, snapping up cheap barrels and increasing imports of Russian crude 16-fold compared to before the war, according to the Paris-based International Energy Agency. Russian crude accounted for about a third of its total imports.
NEW DELHI/LONDON, March 8 (Reuters) - U.S.-led international sanctions on Russia have begun to erode the dollar's decades-old dominance of international oil trade as most deals with India - Russia's top outlet for seaborne crude - have been settled in other currencies.
The dollar's pre-eminence has periodically been called into question and yet it has continued because of the overwhelming advantages of using the most widely-accepted currency for business.
India's oil trade, in response to the turmoil of sanctions and the Ukraine war, provides the strongest evidence so far of a shift into other currencies that could prove lasting.
The country is the world's number three importer of oil and Russia became its leading supplier after Europe shunned Moscow's supplies following its invasion of Ukraine begun in February last year.
Some Dubai-based traders, and Russian energy companies Gazprom and Rosneft are seeking non-dollar payments for certain niche grades of Russian oil that have in recent weeks been sold above the $60 a barrel price cap, three sources with direct knowledge said.
The sources asked not to be named because of the sensitivity of the issue.
Those sales represent a small share of Russia's total sales to India and do not appear to violate the sanctions, which U.S. officials and analysts predicted could be skirted by non-Western services, such as Russian shipping and insurance.
Three Indian banks backed some of the transactions, as Moscow seeks to de-dollarise its economy and traders to avoid sanctions, the trade sources, as well as former Russian and U.S. economic officials, told Reuters.
But continued payment in dirhams for Russian oil could become harder after the United States and Britain last month added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions list.
MTS had facilitated some Indian oil non-dollar payments, the trade sources said. Neither MTS nor the U.S. Treasury immediately responded to a Reuters request for comment.
An Indian refining source said most Russian banks have faced sanctions since the war but Indian customers and Russian suppliers are determined to keep trading Russian oil.
"Russian suppliers will find some other banks for receiving payments," the source told Reuters.
"As it is, the government is not asking us to stop buying Russian oil, so we are hopeful that an alternative payment mechanism will be found in case the current system is blocked."
“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.”
Why Biden is wise to reduce the deficit
Progressives are a bit too sanguine about debt levels
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.
US bank trouble heralds end of dollar reserve system – Asia Times
Bank crisis not a credit quality problem but stems instead from now-impossible task of financing America’s ever-expanding foreign debt
By DAVID P. GOLDMAN
“The dollar reserve system will go out not with a bang, but a whimper.”
Good article on how foreign banks will slowly start unwinding their $18 trillion of dollar-based assets, including US treasuries.
Gold and Chinese Yuan will become vital players in global trade. (Local currency swaps too).
Those who pooh-pooh yuan don’t understand that petroyuan is already a reality — Russian and Iranian oil are being sold in RMB.
And consider Turkiye’s currency (Lira) which was on a precipitous downfall but was saved by the embrace of China’s yuan.
Other countries should have really started de-dollarization after the 2008 financial crisis, but they succumbed to geopolitical pressure.
The US banking system is broken. That doesn’t portend more high-profile failures like Credit Suisse. The central banks will keep moribund institutions on life support.
But the era of dollar-based reserves and floating exchange rates that began on August 15, 1971, when the US severed the link between the dollar and gold, is coming to an end. The pain will be transferred from the banks to the real economy, which will starve for credit.
And the geopolitical consequences will be enormous. The seize-up of dollar credit will accelerate the shift to a multipolar reserve system, with advantage to China’s RMB as a competitor to the dollar.
Gold, the “barbarous relic” abhorred by John Maynard Keynes, will play a bigger role because the dollar banking system is dysfunctional, and no other currency—surely not the tightly-controlled RMB—can replace it. Now at an all-time record price of US$2,000 an ounce, gold is likely to rise further.
The greatest danger to dollar hegemony and the strategic power that it imparts to Washington is not China’s ambition to expand the international role of the RMB. The danger comes from the exhaustion of the financial mechanism that made it possible for the US to run up a negative $18 trillion net foreign asset position during the past 30 years.
Germany’s flagship institution, Deutsche Bank, hit an all-time low of 8 euros on the morning of March 24, before recovering to 8.69 euros at the end of that day’s trading, and its credit default swap premium—the cost of insurance on its subordinated debt—spiked to about 380 basis points above LIBOR, or 3.8%.
That’s as much as during the 2008 banking crisis and the 2015 European financial crisis, although not quite as much as during the March 2020 Covid lockdown, when the premium exceeded 5%. Deutsche Bank won’t fail, but it may need official support. It may have received such support already.
This crisis is utterly unlike 2008, when banks levered up trillions of dollars of dodgy assets based on “liar’s loans” to homeowners. Fifteen years ago, the credit quality of the banking system was rotten and leverage was out of control. Bank credit quality today is the best in a generation. The crisis stems from the now-impossible task of financing America’s ever-expanding foreign debt.
It’s also the most anticipated financial crisis in history. In 2018, the Bank for International Settlements (a sort of central bank for central banks) warned that $14 trillion of short-term dollar borrowings of European and Japanese banks used to hedge foreign exchange risk were a time bomb waiting to explode (“Has the derivatives volcano already begun to erupt?”, October 9, 2018).
In March 2020, dollar credit seized up in a run for liquidity when the Covid lockdowns began, provoking a sudden dearth of bank financing. The Federal Reserve put out the fire by opening multi-billion-dollar swap lines to foreign central banks. It expanded those swap lines on March 19.
US bank trouble heralds end of dollar reserve system – Asia Times
Correspondingly, the dollar balance sheet of the world banking system exploded, as gauged by the volume of overseas claims in the global banking system. This opened up a new vulnerability, namely counterparty risk, or the exposure of banks to enormous amounts of short-term loans to other banks.
America’s chronic current account deficits of the past 30 years amount to an exchange of goods for paper: America buys more goods than it sells, and sells assets (stocks, bonds, real estate, and so on) to foreigners to make up the difference.
America now owes a net $18 trillion to foreigners, roughly equal to the cumulative sum of these deficits over 30 years. The trouble is that the foreigners who own US assets receive cash flows in dollars, but need to spend money in their own currencies.
With floating exchange rates, the value of dollar cash flows in euro, Japanese yen or Chinese RMB is uncertain. Foreign investors need to hedge their dollar income, that is, sell US dollars short against their own currencies.
That’s why the size of the foreign exchange derivatives market ballooned along with America’s liabilities to foreigners. The mechanism is simple: If you are receiving dollars but pay in euros, you sell dollars against euros to hedge your foreign exchange risk.
But your bank has to borrow the dollars and lend them to you before you can sell them. Foreign banks borrowed perhaps $18 trillion from US banks to fund these hedges. That creates a gigantic vulnerability: If a bank looks dodgy, as did Credit Suisse earlier this month, banks will pull credit lines in a global run.
Before 1971, when central banks maintained exchange rates at a fixed level and the United States covered its relatively small current account deficit by transferring gold to foreign central banks at a fixed price of $35 an ounce, none of this was necessary.
The end of the gold link to the dollar and the new regime of floating exchange rates allowed the United States to run massive current account deficits by selling its assets to the world. The population of Europe and Japan was aging faster than the US, and had a correspondingly greater need for retirement assets. That arrangement is now coming to a messy end.
One failsafe gauge of global systemic risk is the price of gold, and especially the price of gold relative to alternative hedges against unexpected inflation. Between 2007 and 2021, the price of gold tracked inflation-indexed US Treasury securities (“TIPS”) with a correlation of about 90%.
Starting in 2022, however, gold rose while the price of TIPS fell. Something like this happened in the aftermath of the 2008 global financial crisis, but the past year’s move has been far more extreme. Shown below is the residual of the regression of the gold price against 5- and 10-year maturity TIPS.
If we look at the same data in a scatter plot, it’s clear that the linear relationship between gold and TIPS remains in place, but it has shifted both its baseline and steepened its slope.
In effect, the market worries that buying inflation protection from the US government is like passengers on the Titanic buying shipwreck insurance from the captain. The gold market is too big and diverse to manipulate. No one has a lot of confidence in the US Consumer Price Index, the gauge against which the payout of TIPS is determined.
The dollar reserve system will go out not with a bang, but a whimper. The central banks will step in to prevent any dramatic failures. But bank balance sheets will shrink, credit to the real economy will diminish and international lending in particular will evaporate.
At the margin, local currency financing will replace dollar credit. We have already seen this happen in Turkey, whose currency imploded during 2019-2021 as the country lost access to dollar and euro financing.
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