I may suggest a different route for China: they will take their mountain of USD and developed-country currency reserves, and build an alternative financial system. Instead of using their own RMB to lend, and thereby lose control of the exchange rate mechanism that has served them so well, they will lend our own currencies.
The PBOC is not an issuer of US dollars, so they cannot create new USD as a central bank can in its own currency. But they are creating new economic activity by lending USD in their own banking system, outside SWIFT.
For countries that already trade USD in heavy volumes, such as Persian Gulf states, they can use USD in their trades with each other, without exposing their own currencies or reserves to the Western systems. For African and other developing countries that cannot easily access USD capital pools, the trades can be done in RMB.
The urge to decouple from the US dollar system has always been there, but after the sanctions put on Russian banks and the seizure of their assets in Western banks, the efforts went into hyperdrive.
In short, these economies don't need a new currency, backed by gold. They've got a giant pile of dollars that will do just fine, and it continues to grow, every day, from runaway US government deficits, and huge trade imbalances.
Brilliant article.
I may suggest a different route for China: they will take their mountain of USD and developed-country currency reserves, and build an alternative financial system. Instead of using their own RMB to lend, and thereby lose control of the exchange rate mechanism that has served them so well, they will lend our own currencies.
The PBOC is not an issuer of US dollars, so they cannot create new USD as a central bank can in its own currency. But they are creating new economic activity by lending USD in their own banking system, outside SWIFT.
For countries that already trade USD in heavy volumes, such as Persian Gulf states, they can use USD in their trades with each other, without exposing their own currencies or reserves to the Western systems. For African and other developing countries that cannot easily access USD capital pools, the trades can be done in RMB.
The urge to decouple from the US dollar system has always been there, but after the sanctions put on Russian banks and the seizure of their assets in Western banks, the efforts went into hyperdrive.
In short, these economies don't need a new currency, backed by gold. They've got a giant pile of dollars that will do just fine, and it continues to grow, every day, from runaway US government deficits, and huge trade imbalances.
So the $37 trilion US deficit is China's fault?
Not dropping the gold stanadard, not the endless money printing, not the endless wars and regime changes?
Good find! Mad respect for Russell