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The Adverse Dilemma Of RMB And USD Under The Multi Currency System

2014/6/9 22:01:00 253

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This year marks the 70th anniversary of the establishment of the Bretton Woods system. The Bretton Woods system, which once contributed to the global economy, has collapsed for more than 40 years, but the new framework of the international monetary system has not yet been established. A new currency war will still emerge, and the possibility will increase rather than decrease.


The so-called new normal of the international monetary system means that it is impossible to return to the era dominated by single sovereign currency in the future. Perhaps there will be fundamental changes in the market model.


At present, the global monetary system has actually completed the dual currency reserve system. IMF data shows that the proportion of US dollars in the global central bank foreign exchange reserves peaked in June 2001, reaching 72.7%. As of the third quarter of 2013, the U.S. dollar accounted for 61.44% of the foreign exchange reserves held by global central banks, but the situation is still changing.


Recently, Pan Gongsheng, Vice President of the People's Bank of China, said that the diversification of reserve currencies will be the result of market selection. The industry and academia are very confident that RMB will be diversified in the future Monetary system Among them, they can occupy a seat.


In Pan Gongsheng's view, the diversification of reserve currencies is a reform direction worth exploring. It is difficult for the diversified reserve currency system to fundamentally solve the internal defects of reserve currencies, and it will still inevitably face the "Triffin Problem", and some new situations may arise in the process of turning to a diversified monetary system.


This shows that Central Bank The attitude towards RMB internationalization has fundamentally changed. This comes from two variables of market and policy changes. From the market perspective, Pan Gongsheng said that the diversification of reserve currencies will be the result of market selection. In the past few years, driven by the market, the international use of RMB has developed rapidly.


In April, Standard Chartered Bank pointed out in its report that at least 40 central banks have made bets on China's RMB, and more central banks are preparing to take the same measures. This trend is emerging in both emerging markets and developed countries. According to the report, these central banks are "moving towards other currencies", and "many central banks are adding RMB to their portfolios".


From the policy perspective, the massive foreign exchange reserves have become a serious burden on China's economy. Premier Li Keqiang said during his previous visit to Africa that the imbalance in foreign trade has damaged China's macro-economy, and China's huge foreign exchange reserves are actually a heavy burden on the country.


Since this year, the policy has clearly pointed to the internationalization of RMB. However, the current difficulties and internationalization of RMB face several major problems: 1. The double surplus of capital and trade items is not sustainable, and one of the deficits is needed to ensure the balance of international payments. 2. How can the international reserve currency solve the "Triffin Problem"? That is to say, the reserve currency country should be a trade deficit country. 3. How to choose Mondale's ternary paradox again?


And RMB The dilemma corresponds to the fact that the double deficit between the US economy and the US dollar is unsustainable.


The hegemony of the US dollar has always existed since the establishment of the Bretton Woods system, even after the collapse of the system. People all blame the hegemony of the US dollar, seigniorage in the world, exchange rate fluctuations in emerging market countries and even crises. To sum up, we can use the famous words of former US Treasury Secretary Connery: the dollar is ours, and the trouble is yours.


There is no denying that Americans have gained incalculable economic benefits with the hegemony of the US dollar. But there is always another side to the story. This is exactly what Nobel Prize winner Friedman said: there is no free lunch.


Americans have already begun to reflect on what the US dollar hegemony has brought to the United States? At least the conclusion of reflection includes: whether the international dominance of the US dollar is generally beneficial to the US economy, the answer to this question is no longer clear.


A representative point of view is that Zoellick, the former president of the World Bank, pointed out in an article criticizing the monetary system that the internationalized status of the US dollar has brought about two huge costs: first, other countries can lower the exchange rate of their own currencies by buying US dollars, hurting US exports and employment; Second, when the economic imbalance intensifies, there is no pressure to force the United States to adjust its economic and fiscal policies, which constitutes a moral hazard.


The policies and behaviors that once advocated to strengthen the US dollar have disappeared, and the weak US dollar financial policy has replaced them. When the dollar cannot depreciate itself, it forces other countries to appreciate their currencies.


The hegemony of the US dollar and the benefits of seigniorage over the past few decades have always faced the economic common sense that "there is no free lunch in the world". Americans are beginning to understand that it costs too much to be the leader of the US dollar. Perhaps, Americans also need to understand that they should welcome the internationalization of the RMB rather than obstruct it, as they do with the euro.


The dilemma of the US dollar is that the fiscal and trade deficits cannot be sustained for a long time. Because the existence of the US dollar hegemony conceals this unsustainable situation, Americans mistakenly believe that it can last forever. Unfortunately, the 2008 financial crisis finally forced Americans to reflect bitterly.


It is obviously unreasonable to accuse China. But this reflects the reverse dilemma between the US dollar and the RMB - China's trade surplus made up for the US trade deficit by purchasing US government bonds. China not only provides cheap goods and capital to Americans, but also lowers the cost of capital for the United States.


On the other hand, what kind of situation does China have? This is what Premier Li Keqiang said about the heavy burden. The most important thing is that the respective economies of China and the United States need to be rebalanced. For more than five years since the financial crisis, the United States has been carrying out painful rebalancing. China must also begin its own rebalancing process.

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