Saturday, July 11, 2020

South China Morning Post - US Coronavirus Stimulus Reignites China's Criticism of US Dollar

This article in the South China Morning Post once again outlines how the present monetary system is still very much US dollar based. The article notes that all the massive money creation of US dollars by the Federal Reserve is generating concerns within China about the future prospects for the US dollar. China is said to hold at least $2 Trillion in assets denominated in US dollars. 

However, the article also points once again that no viable alternative to the US dollar seems anywhere on the horizon. Below are a couple of excerpts with my added underlines for additional emphasis.


"The US economic policy response to the coronavirus crisis and the threat of financial sanctions on China have reinvigorated criticism in Beijing over the US dollar hegemony, but few analysts see a viable alternative currency emerging any time soon.

Chinese officials have recently taken aim at the unprecedented coronavirus stimulus in the United States, which has seen American debt levels balloon and stoked concern in Beijing about the devaluation of the US dollar assets held by Chinese financial institutions."

. . . .

"China has long had an issue with the perceived “exorbitant privilege” of the US dollar, which is the bedrock of the global financial system and underpins the lion’s share of international trade and cross-border financial transactions."

. . . . 

"Though the attitude in Beijing may be increasingly wary, few Western economists believe Washington is abusing the power of the US dollar with its coronavirus response. Others point out the impact on exchange rates has so far been relatively mild."

. . . . 

“Given the US dollar shortage that emerged with Covid, a weaker dollar is still good for the world, relieving funding pressures in both developed markets and emerging markets,” said Steve Englander, global head of North America macro strategy at Standard Chartered Bank.

Reform of international monetary policy is likely to take a back seat to efforts to stabilise the global economy from the coronavirus pandemic. But even in the long-term, it is not clear what shape that would take.

“In fact, the Fed’s apparent magnanimity in allowing other countries to have access to dollar financing collateralised by their holdings of US Treasuries will pull countries even deeper into the clutches of the dollar,” Prasad said."

My added comments: My key takeaway from this article is that once again, while many people are unhappy with the present US dollar based monetary system, the current monetary system authorities don't see any thing on the immediate horizon likely to change the situation any time soon. Also, this article quotes Steve Englander (Standard Chartered Bank) as saying a weaker US dollar is a good thing and that Federal Reserve policy likely to result in a weaker dollar should be welcomed around the world. Lately, the US dollar index has been falling. Of course a US dollar systemic failure would change things at any time that were to happen.

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