Is Euro Ready To Replace US Dollar As Reserve Currency?

There are mounting global concerns about sharp decline in the value of US dollar against the euro and other major world currencies. Not only has it fueled inflation with higher prices of basic commodities such as food grains, oil and metals but it has also diminished the value of the reserves held in dollars by the vast majority of central banks around the world. These issues are giving to rise to a discussion of how long can the US dollar remain as the currency of choice for central bankers. To understand this discussion, let's look at the history of reserve currencies in the past and the current situation with global trade.

When the 20th century began, the U.S. was already the world's biggest economy, but the British pound still accounted for nearly two-thirds of official foreign-exchange reserves held by the world's central banks. The dollar didn't become the dominant currency until after World War II. Even then, some commodities still traded in pounds: The London sugar market didn't jettison sterling for a dollar-denominated trading contract until around 1980. The history lesson here is that, while the reserve and trade currencies can and do change, it takes a significant re-architecture of the world economy and trade and significant amount of time for it to happen. Nearly two-thirds of the world's central-bank reserves remain denominated in dollars, according to data from the International Monetary Fund, despite widespread fears of a mass exodus from the currency. The euro accounts for about a quarter -- up from 18% when it was introduced in 1999, but less than its predecessor currencies' share in 1995. Because the U.S. is such a huge trading partner for so many countries, the reserve buildup isn't easily unwound.
According to the Wall Street Journal, the dollar is also deeply entrenched in world trade. Businesses lower their transaction costs by dealing in a common currency. More than 80% of exports from Indonesia, Thailand and Pakistan are invoiced in dollars, for instance, according to the latest figures available in research by the European Central Bank, although less than a quarter of their exports go to the U.S.

While many nations want to change at least part of their reserve holdings from US dollars to euros, they know if they sell a significant share of their dollar reserves, it would weaken the dollar's value. That would potentially hurt their own trade competitiveness, and push down the value of their remaining dollar reserves. If they keep the dollars, a buildup of unwanted assets would only mount.
"There is no alternative to the dollar as a trading currency in Asia," Andy Xie, a Hong Kong-based economist told the Wall Street Journal. "Eventually, the renminbi [yuan] will replace the dollar in Asia, perhaps in our lifetime. But it will take at least 30 to 40 years."

Comments

Riaz Haq said…
Robert Fisk in the Independent says there is a move afoot to change the price of oil from US dollar:

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
Riaz Haq said…
Here's a report of a Swiss journalist forecasting doomsday for US dollar:

The United States greenback has become the biggest speculative bubble in history and will soon go the way of the dinosaurs, warns Swiss financial journalist Myret Zaki.

In her latest book, Zaki says that the euro’s future is much brighter and that attacks against the currency are just a smokescreen aimed at hiding the collapse of the American economy.

“The collapse of the American dollar… is inevitable. The world’s biggest economy is nothing but an illusion. To produce $14,000 billion of nation income, the United States has created over $50,000 billion of debt that costs it $4,000 billion in interest payments each year.”

There can be little doubt about Myret Zaki’s opinion of the American dollar and economy, which she considers technically bankrupt, an opinion she backs up in her new book, La fin du dollar (The end of the dollar).

Over the past few years, she has become one of Switzerland’s best known business journalists, with a book about the UBS debacle in the US and another about tax evasion.

swissinfo.ch: You say in your book that the end of the dollar will be the major event of the 21st century. Aren’t you painting the situation more catastrophic than it really is?

Myret Zaki: I realise that predicting such a huge event when there are no tangible warning signs of a violent crisis may seem all doom and gloom. But I reached those conclusions based on extremely rational and factual criteria.

More and more American authors believe that their country’s monetary policy will lead to such a situation. It is simply impossible that it will happen any other way.

swissinfo.ch: It’s not the first time the end of the dollar has been foreseen. What makes the situation different in 2011?

M.Z.: It’s true that it has been announced since the 1970s. But never have so many different factors come together, letting us fear the worst. American debt has reached a record level, the dollar is at a historic low against the Swiss franc and most new American bond issues are being bought by the US Federal Reserve. Other central banks have also been criticising the US, creating a hostile front against American monetary policy.

swissinfo.ch: Besides the end of the dollar, you are also announcing the end of the US as an economic superpower. Isn’t America simply too big to fail?

M.Z.: Everybody has an interest in the US economy staying afloat, so everyone is in denial for the time being. But it won’t last forever. No one will be able to save the Americans. They will have to carry the burden of their bankruptcy alone.

They can expect a very long period of austerity, which has already begun. Forty-five million Americans have already lost their homes, 20 per cent of the population is out of the economic system and is not spending, while a third of states are bankrupt. No-one is investing their money in the country any more. Everything is built on debt.
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swissinfo.ch: What will happen if the dollar collapses as predicted?

M.Z.: Europe is the planet’s biggest economic power and it has a strong reference currency. Unlike the United States, it is also expanding. In Asia, the Chinese yuan will become the reference and China is Europe’s biggest ally.

It has an interest in supporting a strong euro so it can diversify its investments. China also needs an ally within the World Trade Organization and the G20 so it can avoid a re-evaluation of its currency. Today, Europe and China are two gravitational forces that are attracting two former US allies, Britain and Japan....
Riaz Haq said…
Here's an Asia Times piece on the importance of GCC Arabs to US power and US dollar:

There's no way to understand the larger-than-life United States-Iran psychodrama, the Western push for regime change in both Syria and Iran, and the trials and tribulations of the Arab Spring(s) - now mired in perpetual winter - without a close look at the fatal attraction between Washington and the GCC. [1]

GCC stands for Gulf Cooperation Council, the club of six wealthy Persian Gulf monarchies (Saudi Arabia, Qatar, Oman, Kuwait, Bahrain and the United Arab Emirates - UAE), founded in 1981 and which in no time configured as the prime strategic US backyard for the invasions of Afghanistan in 2001 and Iraq in 2003, for the long-drawn battle in the New Great Game in Eurasia, and also as the headquarters for "containing" Iran.

The US Fifth Fleet is stationed in Bahrain and Central Command's forward headquarters is based in Qatar; Centcom polices no less than 27 countries from the Horn of Africa to Central Asia - what the Pentagon until recently defined as "the arc of instability". In sum: the GCC is like a US aircraft carrier in the Gulf magnified to Star Trek proportions.

I prefer to refer to the GCC as the Gulf Counter-revolution Club - due to its sterling performance in suppressing democracy in the Arab world, even before Mohammed Bouazizi set himself on fire in Tunisia over a year ago.

Cueing to Orson Welles in Citizen Kane, the Rosebud inside the GCC is that the House of Saud sells its oil only in US dollars - thus the pre-eminence of the petrodollar - and in exchange benefits from massive, unconditional US military and political support. Moreover the Saudis prevent the Organization of Petroleum Exporting Countries (OPEC) - after all they're the world's largest oil producer - to price and sell oil in a basket of currencies. These rivers of petrodollars then flow into US equities and Treasury bonds.

For decades virtually the whole planet has been held hostage to this fatal attraction. Until now.

Gimme all your toys
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It's true that whoever dominates the GCC - with weapons and political support - projects power globally. The GCC has been absolutely key for US hegemony within what Immanuel Wallerstein defines as the world system.

Yet let's take a look at the numbers. Since last year Saudi Arabia is exporting more oil to China than to the US. This is part of an inexorable process of GCC energy and commodity exports moving to Asia.

By next year foreign assets held by the GCC could reach $3.8 trillion with oil at $70 a barrel. With all that non-stop "tension" in the Persian Gulf, there's no reason to believe oil will be below $100 in the foreseeable future. In this case GCC foreign assets could reach a staggering $5.7 trillion - that's 160% more than in pre-crisis 2008, and over $1 trillion more than China's foreign assets.

At the same time, China will be increasingly doing more business with the GCC. The GCC is increasingly importing more from Asia - although the top source of imports is still the European Union. Meanwhile, US-GCC trade is dropping. By 2025, China will be importing three times more oil from the GCC than the US. No wonder the House of Saud - to put it mildly - is terribly excited about Beijing.

So for the moment we have the pre-eminence of NATOGCC military, and USGCC geopolitically. But sooner rather than later Beijing may approach the House of Saud and quietly whisper, "Why don't you sell me your oil in yuan?" Just like China buying Iranian oil and gas with yuan. Petroyuan, anyone? Now that's an entirely new Star Trek.


http://www.atimes.com/atimes/Middle_East/NA20Ak02.html
Riaz Haq said…
Here's a NY Times blog post on BRICS summit in Delhi:

The leaders of Brazil, Russia, India, China and South Africa announced on Thursday that they would investigate establishing a system that would allow them to bypass the dollar and other global currencies when trading among themselves.

The leaders of the BRICS group of nations also announced that they would explore setting up an alternative to the IMF and the World Bank that would loan to developing countries and bypass the U.S.-European axis of power that has dominated global economic affairs since World War II.

In a story on the stakes and the obstacles before the BRICS nations, our colleague Jim Yardley explained that the group had not accomplished very much before this, their fourth summit meeting, in New Delhi. But Jim wrote that they were expected to come away with at least one concrete product this time:

They are expected to announce agreements that would enable the nations to extend each other credit in local currencies while conducting trade, sidestepping the dollar, a substantive move if not yet the kind of game-changing action once expected from BRICS.

But that raises the questions:

Do you expect the BRICS to change the global game? What is their potential as a bloc or an alliance? Indeed, are they a bloc at all, or just a list of countries whose growing economic might symbolizes the rise of a world where the United States is no longer solely dominant?

The five countries have very different agendas and forms of government. Does this make forming any kind of unified policy or outlook unlikely? Are they really just a smart catchphrase from a Goldman Sachs economist to encapsulate changing global economics, as Walter Ladwig, a visiting fellow at the Royal United Services Institute, argued in the Opinion pages of the IHT?

The French daily Le Figaro believes that “little by little, the BRICS are asserting themselves.” To what end, it does not say.

In its analysis of the summit meeting, the Times of India concentrates on the group’s political statements urging negotiated resolutions of the conflict in Syria and the West’s nuclear standoff with Iran.

Reuters concentrates on the lecturing and hectoring that BRICS leaders delivered to the profligate West, quoting the customary end-of-summit joint declaration: “It is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth that create jobs.”


http://rendezvous.blogs.nytimes.com/2012/03/29/what-do-you-think-the-brics-can-build/?scp=1&sq=BRICS&st=cse
Riaz Haq said…
Here's a Reuters' report on Pakistani central bank buying Chinese government bonds:

Pakistan will join a growing list of central banks that will invest in China's interbank market as the world's second-largest economy opens its capital markets.

The People's Bank of China announced on Monday that it had signed an agreement with the State Bank of Pakistan to help Pakistan invest in its local debt market, without providing details about the size of the investment programme.

China has allowed foreign central banks to invest in its domestic interbank bond market since 2010 as part of efforts to widen investment avenues for foreign yuan asset holders and promote the international use of the Chinese currency.

China and Pakistan signed a three-year currency swap deal worth 10 billion yuan ($1.60 billion) in December 2011 and companies in the two countries are encouraged to accept export and import bills in Chinese yuan.

The central banks of Japan, South Korea, Singapore, Thailand, Hong Kong and Indonesia are among those who invest in China's bonds onshore.

Besides central banks, China also allows yuan clearing banks in Hong Kong and Macau and foreign banks that help settle cross-boarder trade in yuan to invest in its interbank bond markets.

($1 = 6.2538 Chinese yuan)


http://uk.reuters.com/article/2012/10/22/uk-china-pakistan-bonds-idUKBRE89L0A620121022
Riaz Haq said…
China is the biggest trading partner of more nations than the US, reports AP:

In just five years, China has surpassed the United States as a trading partner for much of the world, including U.S. allies such as South Korea and Australia, according to an Associated Press analysis of trade data. As recently as 2006, the U.S. was the larger trading partner for 127 countries, versus just 70 for China. By last year the two had clearly traded places: 124 countries for China, 76 for the U.S.



In the most abrupt global shift of its kind since World War II, the trend is changing the way people live and do business from Africa to Arizona, as farmers plant more soybeans to sell to China and students sign up to learn Mandarin.

The findings show how fast China has ascended to challenge America’s century-old status as the globe’s dominant trader, a change that is gradually translating into political influence. They highlight how pervasive China’s impact has been, spreading from neighboring Asia to Africa and now emerging in Latin America, the traditional U.S. backyard.

Despite China’s now-slowing economy, its share of world output and trade is expected to keep rising, with growth forecast at up to 8 percent a year over the next decade, far above U.S. and European levels. This growth could strengthen the hand of a new generation of just-named Chinese leaders, even as it fuels strain with other nations.
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The United States is still the world’s biggest importer, but China is gaining. It was a bigger market than the United States for 77 countries in 2011, up from 20 in 2000, according to the AP analysis.

The AP is using International Monetary Fund data to measure the importance of trade with China for some 180 countries and track how it changes over time. The analysis divides a nation’s trade with China by its gross domestic product.

The story that emerges is of China’s breakneck rise, rather than of a U.S. decline. In 2002, trade with China was 3 percent of a country’s GDP on average, compared with 8.7 percent with the U.S. But China caught up, and surged ahead in 2008. Last year, trade with China averaged 12.4 percent of GDP for other countries, higher than that with America at any time in the last 30 years.

Of course, not all trade is equal. China’s trade is mostly low-end goods and commodities, while the U.S. competes at the upper end of the market


http://www.boston.com/news/world/asia/2012/12/02/impact-china-surpasses-top-global-trader/gwI1PLvAcDPSo90KjJgTUM/story.html
Riaz Haq said…
#US #Dollar is dominant #international #trade #currency, with a 51.9% share of value of international settlements/transactions, followed by #euro with 30.5%, #British pound with 5.4% and the rest is in #Asian currencies such as #Japanese #yen and #Chinese #yuan. Source: SWIFT


Worldwide Currency Usage and Trends
Information paper prepared by SWIFT in collaboration with City of London and Paris EUROPLACE
December 2015


This paper analyses a range of previously unpublished SWIFT messaging flows to address key questions on how currency usage in global payments is changing, namely:
— What are the top currencies used in international trade?
— What is the UK’s role in currency flows between Europe, Asia-Pacific and the Americas?
— What are the major currency flows with Europe, excluding the UK?
— What are the drivers or incentives determining the use of a particular currency?
— Are there regions or countries where the use of local currencies could grow?
The US dollar prevails as the dominant international trade currency, with a 51.9% share of the value
of international currency usage in 2014. The euro is second, with a 30.5% share of the total value. The British pound is third, with a 5.4% share of
the total value, followed by Asian currencies such
as the Japanese yen and the Chinese yuan. While accounting for a relatively small proportion of worldwide international currency usage, the Chinese yuan (CNY) or renminbi (RMB), is nonetheless experiencing a stellar ascension, as evidenced by the SWIFT monthly RMB Tracker3. At the time of writing this paper, SWIFT data shows the RMB is currently ranked fifth for Asia-Pacific inflows and outflows with Europe, excluding the UK4.
The analysis of current financial flows (bank-to- bank flows) does not fully reflect the global reach of commercial flows (customer-to-customer flows). Many import and export settlements involve intermediation by banks that are based
in established financial centres. As such, the importance of US dollar clearing banks in the United States, reflecting the prevalence of the US dollar in international trade, and the importance of
the UK as a payments intermediary for euro flows, continues to be reflected in SWIFT statistics.
Looking at financial flows in value, the UK is the main correspondent country within Europe for Americas and Asia-Pacific, regardless of the currency. UK financial institutions process more than 50% of all European inflows and outflows with the Americas and Asia-Pacific.
For commercial flows denominated in the euro or in Chinese yuan, UK-based banks also play a significant role, intermediating flows to and from Europe.
The British pound’s ranking in third position, and the scale of its usage on a worldwide basis, is reflective of the UK and specifically London’s role as a centre of financial market activity. However, for financial flows where the UK is not involved, the British pound’s share is very small. In contrast, for euro financial flows that take place outside
of the Eurozone, the euro’s share compared to other currencies is more significant. This highlights the geographical spread of euro-denominated payments.
The Chinese yuan’s usage continues to grow significantly, particularly in flows between Europe and Asia-Pacific, which have increased considerably over the last two years, and where the currency is now ranked fifth. The People’s Bank of China (PBOC) demonstrates a strong commitment to promoting the internationalisation of the Chinese yuan, and the Chinese government has implemented a range of supportive policy measures.
In contrast, the European Central Bank (ECB)
has not pursued the same internationalisation
strategy with the euro. Its focus has been on
regional stability rather than expanding the euro’s
international commercial usage, as noted in the
ECB’s July 2015 report ‘The international role of the
5 euro’ .
Riaz Haq said…
Money and Empire: Charles P. Kindleberger and the Dollar System

By Perry Mehrling

https://www.bu.edu/gdp/2022/11/08/money-and-empire-charles-p-kindleberger-and-the-dollar-system/

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.

Riaz Haq said…
Speaking at ET Awards for Corporate Excellence 2023 last week, the veteran banker had said, “I genuinely feel that the biggest financial terrorist in the world is the US dollar." Telling why he feels this way, the Kotak Mahindra Bank chief stated that all our money is in nostro accounts and somebody in the US can say

https://youtu.be/QXC9BsiRLlU

-----------------

'I'd like to correct': Uday Kotak clarifies ‘financial terrorist’ statement about US dollar

In the March quarter, Kotak Mahindra Bank witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore

https://www.businesstoday.in/industry/banks/story/uday-kotak-clarifies-financial-terrorist-statement-on-us-dollar-as-reserve-currency-379470-2023-04-30

Uday Kotak, the CEO of Kotak Mahindra Bank, has provided further clarification on his recent statement about the US dollar being the "biggest financial terrorist in the world." Kotak clarified in a tweet that his statement about the "financial terrorist" was not specifically aimed at the US dollar but rather at the disproportionate power that any reserve currency holds.

According to Kotak, the US dollar's status as a reserve currency gives it an unfair advantage in controlling global transactions, which could potentially result in other countries becoming overly reliant on it. He further elaborated that a reserve currency wields significant power, including the ability to dictate whether money in nostro accounts can be withdrawn, which can have a profound impact on the global financial landscape. Kotak believes that the world is actively searching for an alternative reserve currency and posits that India has the potential to promote the Indian Rupee as a strong contender to fill this role on the global stage. By doing so, he suggested that India can reduce its dependency on the US dollar and promote a more diversified, stable global financial system.

He clarified his previous statement in a tweet saying, "In a recent discussion on the US dollar, I inadvertently used words 'financial terrorist,' which I would like to correct. What I meant was that a reserve currency has disproportionate power, whether it is nostro account, 500 bps rate increase, or emerging countries holding $ for liquidity."

In the March quarter, Kotak Mahindra Bank - the second-largest private bank in India - witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore. The bank's net interest income (NII) also saw a significant jump of 35 per cent YoY to reach Rs 6,102.6 crore.

--------------

A nostro account refers to an account that a bank holds in a foreign currency in another bank. Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign exchange and trade transactions.

https://www.investopedia.com/terms/n/nostroaccount.asp#:~:text=A%20nostro%20account%20refers%20to,foreign%20exchange%20and%20trade%20transactions.


Riaz Haq said…
Top 10 Countries that Export the Most Goods and Services (Current US$ millions - World Bank 2020)

https://worldpopulationreview.com/country-rankings/exports-by-country

Rank Country Exports (Current US$)
1 China $2,723,250.43
2 United States $2,123,410.00
3 Germany $1,669,993.51
4 Japan $785,365.75
5 United Kingdom $770,478.62
6 France $733,165.40
7 Netherlands $711,504.80
8 Hong Kong (China SAR) $612,566.52
9 Singapore $599,216.28
10 South Korea $596,945.20

Profiles of the world's largest exporters
1. China
Aside from the European Union (which is a collective of many countries), China is the world’s largest exporter. In 2020, China exported an estimated $2.72 trillion worth of goods and services, primarily electronic equipment and machinery such as broadcast equipment, computers, integrated circuits, office machine parts, and telephones. In 2018, China’s exports made up about 10.78% of the global total.

2. United States

The U.S. is the second-largest exporter in the world, with an estimated $2.12 trillion in exports for 2020. The largest exports of the U.S. are crude and refined petroleum; integrated circuits; pharmaceuticals and medical instruments; and aircraft including planes, spacecraft, and helicopters as well as their replacement parts. One of the reasons that the United States lags behind China in exports is the cost of labor. Many goods cannot be produced, manufactured, or assembled in the U.S. for a price comparable to that in China.

3. Germany
Having exported an estimated $1.67 trillion worth of goods and services in 2020, Germany is the world’s third-largest exporter. As one of the most technologically advanced countries in the world, Germany’s main exports include automobiles (BMW, Mercedes-Benz, Porsche, Audi, Volkswagen), pharmaceuticals (Bayer), aircraft, machinery, electronics, and chemicals. Germany is the third of three countries to have exports exceeding $1 trillion, behind only China and the United States.

4. Japan
Japan’s exports for 2020 were valued at an estimated $785.4 billion. Japan’s major exports include automobiles (Toyota, Honda, Nissan, Mazda, Suzuki, more) and automobile parts, integrated circuits and electronic devices (Nintendo, Panasonic, Sony, and many more). Japan's largest export customers are China, the United States, South Korea, Taiwan, and Hong Kong.

5. United Kingdom

The United Kingdom ranked as the fifth-highest exporter in the world in terms of dollar value in 2020, shipping an estimated $770.5 billion in goods and services to international customers. The U.K.'s top exports include cars (Bentley, Jaguar, Mini, Rolls-Royce, more), gas turbines, gold, medicines, hard liquor, antiques, and crude petroleum (which is often first imported from Norway, then exported to the rest of Europe, as well as China and South Korea).

Riaz Haq said…
Arnaud Bertrand
@RnaudBertrand
SCMP editorial: https://scmp.com/comment/opinion/article/3242880/dollar-still-king-how-much-longer

"The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap...

In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift."


https://x.com/RnaudBertrand/status/1728923824996139481?s=20

---------------------

The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap worth a maximum of 50 billion yuan (HK$55 billion) over the next three years.

In immediate terms, the pact will foster bilateral commerce denominated in both the yuan and the riyal. In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift. It has been a very long time coming.

Almost a year ago, President Xi Jinping made a historic visit to Riyadh, followed by Hong Kong Chief Executive John Lee Ka-chiu in February. A flurry of deals followed.


The Shanghai Stock Exchange and its Saudi counterpart have started collaboration on cross-listings, including exchange-traded funds (ETFs), financial technology (fintech), environmental, social and governance (ESG) and data exchange.

China, Saudi Arabia central banks sign currency swap accord to foster trade
21 Nov 2023
The People’s Bank of China (PBOC) building in Beijing on Tuesday, April 18, 2023. Photo: Bloomberg
The Hong Kong Monetary Authority, the city’s de facto central bank, and the Saudi Central Bank have enhanced ties covering the latest technologies in regulatory supervision and monitoring, and in financial fields such as tokenisation and new payment systems.

However, the latest currency swap pact will be the most important. It means trade can be conducted in local currencies, instead of defaulting to the US dollar. This may be seen as a challenge to US dollar dominance. Perhaps in the longer term, it is. But there is a good economic reason.

The current US federal interest rate of 5-plus per cent has pushed the dollar to historical levels against most other currencies, making trade denominated in the dollar more expensive.

There are obvious advantages for two big trade partners like China and Saudi Arabia to be able to utilise a local-currency option, which will help relieve pressures from having to trade in a more expensive currency.

Global “de-dollarisation” may take a while yet, but the trend already reflects cracks in a global economy long used to US currency settlements.

The yuan may or may not pose a challenge to dollar hegemony, but its internationalisation continues apace – to the benefit of both the Chinese and global economies.
Riaz Haq said…
The era of US dollar dominance is 'finished,' says Wall Street veteran who just retired after 54 years


https://markets.businessinsider.com/news/currencies/dick-bove-banks-usd-dollar-dominance-crypto-china-trade-outsourcing-2024-1

"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times. Bove, 83, predicted that China's economy would surpass America's in size.

The dollar's reign as the world's reserve currency is nearly over, Dick Bove says.

The newly retired bank analyst blamed corporate offshoring and flagged the threat posed by China.

Bove highlighted the de-dollarization trend and said other analysts are too bought in to admit it.

The US dollar has been the lifeblood of global finance and trade since World War II — but one Wall Street veteran thinks the end of that era is nigh.

"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times.

Bove, 83, predicted that China's economy would surpass America's in size. He blamed the outsourcing of US manufacturing to other countries, arguing that trend has given other countries more control of international production, the global economy, and worldwide money flows.

He also suggested that cryptocurrencies such as bitcoin could help fill the void left by the dollar's shrinking influence.

Dollar-denominated assets make up nearly 60% of international reserves, per the International Monetary Fund. However, several countries are embracing "de-dollarization" — working to erode dollar dominance — especially after the US took advantage of Russia's reliance on the greenback to levy sanctions against it following its invasion of Ukraine in 2022.

Nations ranging from Brazil and Argentina to India and Bangladesh are exploring the use of backup currencies and assets, such as the Chinese yuan and bitcoin, for trade and payments.

Several governments have blasted the excessive influence of US monetary policy on other economies and currencies, the dollar's strength for pricing out poor countries from imports, and the diminishing need for a petrodollar now the US has achieved energy independence through domestic shale oil and green energy production.

Bove, who worked at 17 brokerages during his career, told the Times that analysts who aren't forecasting dollar doom are simply "monks praying to money" who are unwilling to bite the hand that feeds them: the traditional financial system.

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