Faith_Lock
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I opened a thread asking whether it is possible for China to be the global reserve currency. Many smart people here had convinced me that it is not possible, at least in the short term.
But with the USA just printing money like there is no tomorrow combined with Trump’s utter failure in governance and his failure to control the pandemic, some mainstream economists start to consider the once unthinkable.
What would happen if people stopped having confidence in USD while there is no adequate substitute?
Anyway, the following are the three articles.
In the first article, economists in Goldman Sachs wrote, “...Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge”…..
In the second article, the chief economist of Bank of China (and a former foreign exchange regulator) asked Chinese banks to switch from SWIFT to China’s CIPS to completely get away from the USD system.
In the third article, it talks about that China had quietly cut dollar usage in Cross-Border trade by 20%. According to the article, “The percentage of the payments and receipts denominated in yuan in total FX transactions by banks for their clients increased to 37% in June, from 19% two years ago”
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The url links and articles are as follows:
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https://thehill.com/policy/finance/...lars-reserve-status-in-question-goldman-sachs
Spike in gold puts dollar's reserve status in question: Goldman Sachs
BY NIV ELIS - 07/28/20 11:43 AM
A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday.
The commodity, which tends to see increased demand during economic uncertainty, reached an unprecedented price of $1,943 an ounce this week, in part because of record-low interest rates that Goldman Sachs analysts said may demonstrate a stronger appetite for inflation at the Federal Reserve.
"Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge," the analysts wrote.
The idea that the dollar may one day be seen as less of a safe currency jeopardizes its role as the world's reserve currency, a position that has given the U.S. financial system a tremendous advantage in global financial markets for decades.
Gold is a safe commodity because it is in limited supply and considered to have inherent value, which means fears of inflation or other economic turbulence like the coronavirus recession could drive up demand. Goldman Sachs increased its 12-month forecast for the price of gold from $2,000 to $2,300 an ounce.
Analysts said that while inflation risks remain low today, a confluence of factors coming together could push prices up in the future. Among those factors are record-low interest rates, new steps by the Federal Reserve to expand its balance sheet and rising debt.
Meanwhile, the Senate may soon hold a confirmation vote on a controversial Trump nominee, Judy Shelton, for a seat on the Federal Reserve Board. Shelton has supported the gold standard in the past, a position that's unpopular on both sides of the aisle and in most economic circles.
GOP Sens. Mitt Romney (Utah) and Susan Collins (Maine) have announced their opposition, meaning one more Republican could sink her nomination.
Shelton, who advised President Trump's campaign in 2016, has called the Federal Reserve's power over financial markets and money “quite unhealthy.”
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https://finance.yahoo.com/news/chinese-banks-urged-switch-away-063728882.html
Chinese banks urged to switch away from SWIFT as U.S. sanctions loom
ReutersJuly 29, 2020
BEIJING, July 29 (Reuters) - China should prepare for potential U.S. sanctions by increasing use of its own financial messaging network for cross-border transactions in the mainland, Hong Kong and Macau, according to a report from the investment banking unit of Bank of China.
Chinese state lenders have been revamping contingency plans in anticipation of U.S. legislation that could penalise banks for serving officials who implement the new national security for Hong Kong, Reuters reported earlier this month.
Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium based SWIFT system would also reduce exposure of China's global payments data to the United States, BOC International (BOCI) said in the report, which was co-authored by a former foreign exchange regulator.
The bank's chief economist Guan Tao was previously a director of the international payments department of State Administration of Foreign Exchange (SAFE).
The report looked at potential measures the United States could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to make financial transactions.
"A good punch to the enemy will save yourself from hundreds of punches from your enemies," the report wrote, amid deteriorating relating between the world's two largest economies. "We need to get prepared in advance, mentally and practically."
China launched the CIPS clearing and settlement services system in 2015 to help internationalise use of the yuan. Supervised by the central bank, CIPS said it processed 135.7 billion yuan ($19.4 billion) a day in 2019, with participation from 96 countries and regions.
The report said that if the United States were to take the extreme action of cutting off some Chinese banks' access to dollar settlements, China should also consider stopping using the U.S. dollar as the anchor currency for its foreign exchange controls.
It also recommended that China develop legislation similar to the European Union's Blocking Statute, which allowed the EU to sustain trade and economic relations with Iran, a country targeted by U.S. sanctions.
The chief financial officer of China's Huawei Technologies , the world’s biggest producer of telecoms equipment, is currently fighting against extradition from Canada to the United States, where she is accused of bank fraud for misleading HSBC Holdings Plc about Huawei's relationship with a company operating in Iran, putting HSBC at risk of fines and penalties for breaking U.S. sanctions.
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https://www.zerohedge.com/markets/china-has-quietly-cut-dollar-usage-cross-border-trade-20
China Has Quietly Cut Dollar Usage In Cross-Border Trade By 20%
by Tyler Durden
Tue, 07/28/2020 - 22:15
The chorus calling for a weaker dollar is getting louder, and now includes none other than a stark warning from Goldman Sachs, which in a stunning shot across the bow of the modern monetary system warned overnight that U.S. monetary and fiscal policy (i.e., helicopter money a/k/a MMT) is triggering currency "debasement fears" and that for the first time "real concerns are emerging" about the future of the dollar as a reserve currency.
And while the DXY Index got a rare reprieve from the selling on Tuesday - despite Goldman's ominous warning - gold continued marching higher, even as technical indicators show signs of near-record overextension.
As Bloomberg's Ye Xie summarizes, "it seems like a perfect storm for the U.S. currency: the relentless decline of real yields, the U.S.’s inability to control the virus, the overhang of the twin deficits and the dear valuation." Adding to reserve currency concerns, Bridgewater’s Ray Dalio - who is clearly talking either his or Beijing's book although these days the two appear interchangeable - warned a Sino-U.S. "capital war" could harm the dollar.
Meanwhile, as Rabobank's Michael Every has been discussing for the past few months, with the U.S. now using the privileged role of the dollar for political gains, such as penalizing banks over issues in Hong Kong and Xinjiang for instance, it will naturally alarm politicians in other countries, Xie adds.
Indeed, as Xie adds, China is already is quietly reducing its reliance on the dollar in cross-border trade and services. The percentage of the payments and receipts denominated in yuan in total FX transactions by banks for their clients increased to 37% in June, from 19% two years ago, according to data compiled by the State Administration of Foreign Exchange, with the Bloomberg strategist also calculating that the usage of the dollar has declined to 56% from 70% - a decline of ~20%.
While this shift partly reflects local companies’ desire to limit their exposure to FX volatility, it may also mirror an intentional nudge from the authorities... and it’s not just trade.
Picking up on his recent observation that Jack Ma's decision to list his giant Ant Group in Shanghai and Hong Kong (where it is seeking a $200BN valuation) instead of the US, coupled with the exodus of U.S.-listed Chinese companies from America, Xie writes that this underscores the shift in capital markets, and adds that "by extension, one has to wonder what Beijing might to do with its $1.1 trillion Treasury holdings."
Guo Shuqing, the party secretary of the PBOC, delivered a stern warning on the U.S. currency last month: "Some people say, 'Domestic debt is not debt, but external debt is debt. For the United States, even external debt is not debt.' This seems to have been the case for quite some time in the past, but can it really last for a long time in the future?"
As Xie concludes referring to the chart above, "apparently China isn’t waiting to find out the answer."
But with the USA just printing money like there is no tomorrow combined with Trump’s utter failure in governance and his failure to control the pandemic, some mainstream economists start to consider the once unthinkable.
What would happen if people stopped having confidence in USD while there is no adequate substitute?
Anyway, the following are the three articles.
In the first article, economists in Goldman Sachs wrote, “...Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge”…..
In the second article, the chief economist of Bank of China (and a former foreign exchange regulator) asked Chinese banks to switch from SWIFT to China’s CIPS to completely get away from the USD system.
In the third article, it talks about that China had quietly cut dollar usage in Cross-Border trade by 20%. According to the article, “The percentage of the payments and receipts denominated in yuan in total FX transactions by banks for their clients increased to 37% in June, from 19% two years ago”
--------------------------------------------------------------------
The url links and articles are as follows:
---------------------------------------------------------------------
https://thehill.com/policy/finance/...lars-reserve-status-in-question-goldman-sachs
Spike in gold puts dollar's reserve status in question: Goldman Sachs
BY NIV ELIS - 07/28/20 11:43 AM
A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday.
The commodity, which tends to see increased demand during economic uncertainty, reached an unprecedented price of $1,943 an ounce this week, in part because of record-low interest rates that Goldman Sachs analysts said may demonstrate a stronger appetite for inflation at the Federal Reserve.
"Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge," the analysts wrote.
The idea that the dollar may one day be seen as less of a safe currency jeopardizes its role as the world's reserve currency, a position that has given the U.S. financial system a tremendous advantage in global financial markets for decades.
Gold is a safe commodity because it is in limited supply and considered to have inherent value, which means fears of inflation or other economic turbulence like the coronavirus recession could drive up demand. Goldman Sachs increased its 12-month forecast for the price of gold from $2,000 to $2,300 an ounce.
Analysts said that while inflation risks remain low today, a confluence of factors coming together could push prices up in the future. Among those factors are record-low interest rates, new steps by the Federal Reserve to expand its balance sheet and rising debt.
Meanwhile, the Senate may soon hold a confirmation vote on a controversial Trump nominee, Judy Shelton, for a seat on the Federal Reserve Board. Shelton has supported the gold standard in the past, a position that's unpopular on both sides of the aisle and in most economic circles.
GOP Sens. Mitt Romney (Utah) and Susan Collins (Maine) have announced their opposition, meaning one more Republican could sink her nomination.
Shelton, who advised President Trump's campaign in 2016, has called the Federal Reserve's power over financial markets and money “quite unhealthy.”
--------------------------------------------------------------------
https://finance.yahoo.com/news/chinese-banks-urged-switch-away-063728882.html
Chinese banks urged to switch away from SWIFT as U.S. sanctions loom
ReutersJuly 29, 2020
BEIJING, July 29 (Reuters) - China should prepare for potential U.S. sanctions by increasing use of its own financial messaging network for cross-border transactions in the mainland, Hong Kong and Macau, according to a report from the investment banking unit of Bank of China.
Chinese state lenders have been revamping contingency plans in anticipation of U.S. legislation that could penalise banks for serving officials who implement the new national security for Hong Kong, Reuters reported earlier this month.
Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium based SWIFT system would also reduce exposure of China's global payments data to the United States, BOC International (BOCI) said in the report, which was co-authored by a former foreign exchange regulator.
The bank's chief economist Guan Tao was previously a director of the international payments department of State Administration of Foreign Exchange (SAFE).
The report looked at potential measures the United States could take against Chinese banks, including cutting off their access to the SWIFT financial messaging service, a primary network used by banks globally to make financial transactions.
"A good punch to the enemy will save yourself from hundreds of punches from your enemies," the report wrote, amid deteriorating relating between the world's two largest economies. "We need to get prepared in advance, mentally and practically."
China launched the CIPS clearing and settlement services system in 2015 to help internationalise use of the yuan. Supervised by the central bank, CIPS said it processed 135.7 billion yuan ($19.4 billion) a day in 2019, with participation from 96 countries and regions.
The report said that if the United States were to take the extreme action of cutting off some Chinese banks' access to dollar settlements, China should also consider stopping using the U.S. dollar as the anchor currency for its foreign exchange controls.
It also recommended that China develop legislation similar to the European Union's Blocking Statute, which allowed the EU to sustain trade and economic relations with Iran, a country targeted by U.S. sanctions.
The chief financial officer of China's Huawei Technologies , the world’s biggest producer of telecoms equipment, is currently fighting against extradition from Canada to the United States, where she is accused of bank fraud for misleading HSBC Holdings Plc about Huawei's relationship with a company operating in Iran, putting HSBC at risk of fines and penalties for breaking U.S. sanctions.
--------------------------------------------------------------------
https://www.zerohedge.com/markets/china-has-quietly-cut-dollar-usage-cross-border-trade-20
China Has Quietly Cut Dollar Usage In Cross-Border Trade By 20%
by Tyler Durden
Tue, 07/28/2020 - 22:15
The chorus calling for a weaker dollar is getting louder, and now includes none other than a stark warning from Goldman Sachs, which in a stunning shot across the bow of the modern monetary system warned overnight that U.S. monetary and fiscal policy (i.e., helicopter money a/k/a MMT) is triggering currency "debasement fears" and that for the first time "real concerns are emerging" about the future of the dollar as a reserve currency.
And while the DXY Index got a rare reprieve from the selling on Tuesday - despite Goldman's ominous warning - gold continued marching higher, even as technical indicators show signs of near-record overextension.
As Bloomberg's Ye Xie summarizes, "it seems like a perfect storm for the U.S. currency: the relentless decline of real yields, the U.S.’s inability to control the virus, the overhang of the twin deficits and the dear valuation." Adding to reserve currency concerns, Bridgewater’s Ray Dalio - who is clearly talking either his or Beijing's book although these days the two appear interchangeable - warned a Sino-U.S. "capital war" could harm the dollar.
Meanwhile, as Rabobank's Michael Every has been discussing for the past few months, with the U.S. now using the privileged role of the dollar for political gains, such as penalizing banks over issues in Hong Kong and Xinjiang for instance, it will naturally alarm politicians in other countries, Xie adds.
Indeed, as Xie adds, China is already is quietly reducing its reliance on the dollar in cross-border trade and services. The percentage of the payments and receipts denominated in yuan in total FX transactions by banks for their clients increased to 37% in June, from 19% two years ago, according to data compiled by the State Administration of Foreign Exchange, with the Bloomberg strategist also calculating that the usage of the dollar has declined to 56% from 70% - a decline of ~20%.
While this shift partly reflects local companies’ desire to limit their exposure to FX volatility, it may also mirror an intentional nudge from the authorities... and it’s not just trade.
Picking up on his recent observation that Jack Ma's decision to list his giant Ant Group in Shanghai and Hong Kong (where it is seeking a $200BN valuation) instead of the US, coupled with the exodus of U.S.-listed Chinese companies from America, Xie writes that this underscores the shift in capital markets, and adds that "by extension, one has to wonder what Beijing might to do with its $1.1 trillion Treasury holdings."
Guo Shuqing, the party secretary of the PBOC, delivered a stern warning on the U.S. currency last month: "Some people say, 'Domestic debt is not debt, but external debt is debt. For the United States, even external debt is not debt.' This seems to have been the case for quite some time in the past, but can it really last for a long time in the future?"
As Xie concludes referring to the chart above, "apparently China isn’t waiting to find out the answer."
