Trump
administration is considering the expansion of the trade war to
finance, which could destabilize the US dollar and derail the
post-pandemic global economy.
After its failure in the COVID-19 containment and the expected -53 percent plunge of real GDP growth in the 2 quarter, President Trump’s re-election campaign is in serious trouble. To deflect the blame, his administration has launched a series of provocative measures against China thereby fueling elevated bilateral tensions.
Worse, the White House is reportedly considering moving from a bilateral trade war to an effort to exclude China from the dollar-denominated international payment network. In Beijing, that would be seen as the weaponization of the US dollar.
Created in Brussels in 1973 – after the rise of US deficits, weaker US dollar, and its decoupling from the gold standard – the dollar clearing and settlement system (Society for Worldwide Interbank Financial Telecommunication, SWIFT) is ostensibly a non-profit organization. Yet, its first CEO was a former executive of American Express and its data centers are in the US, Netherlands, and Switzerland.
According to critics, the SWIFT’s status changed after 9/11, when the Bush administration, true to its unipolar stance on US security and defense, seized the payments network as an added tool in “coercive diplomacy.” In the Trump era, coercive diplomacy has been expanded in US economic engagements.
In the interdependent global economy, international trade and finance are two sides of the same coin. Cross-border trade transactions rely on an effective international payments system and a robust network of financial institutions issuing credit.
That infrastructure remains built around US dollar, which the Trump administration would like to leverage to contain China’s rise.
In the postwar era, the Japanese yen's might peaked in the mid-1980s, when Tokyo agreed to a managed trade deal in New York City's midtown Plaza Hotel. The controversial pact led the US, France, West Germany, the UK and Japan to depreciate US dollar relative to the Japanese yen and Deutsche mark by intervening in the currency markets.
Through the Trump years, China has resisted protectionism and trade wars. But as a defensive measure, Beijing may now be forced to prepare against the risks of being cut off from the US dollar payment system.
Under the US dollar payment system, China remains vulnerable to potential US sanctions.
As long as China holds $1.1 trillion in US treasury bills and large investments that remain denominated in US dollars, exposure remains high. Over time, Beijing can diversify away from some of these bills and investments, while internationalization of the renminbi would reduce reliance on the US dollar.
China is preparing for currency swap facilities as part of the Belt and Road Initiative (BRI) and in the Regional Comprehensive Economic Partnership (RCEP) with many Southeast Asian countries.
Similarly, according to a recent report, sovereign wealth funds expect China to remain in the economic driving seat, despite the Trump administration’s cold wars.
Thanks to the long-term potential of Chinese economy and finance, renmibi’s role as a global reserve currency and its rising attractiveness for international transactions, the time is right for accelerated internationalization. As China is now the first major economy to defuse the COVID-19 impact and is rebounding, global demand for renminbi assets is rising.
Read the full report at:
Trump White House Accelerating Toward a Dollar Crisis
After its failure in the COVID-19 containment and the expected -53 percent plunge of real GDP growth in the 2 quarter, President Trump’s re-election campaign is in serious trouble. To deflect the blame, his administration has launched a series of provocative measures against China thereby fueling elevated bilateral tensions.
Worse, the White House is reportedly considering moving from a bilateral trade war to an effort to exclude China from the dollar-denominated international payment network. In Beijing, that would be seen as the weaponization of the US dollar.
Created in Brussels in 1973 – after the rise of US deficits, weaker US dollar, and its decoupling from the gold standard – the dollar clearing and settlement system (Society for Worldwide Interbank Financial Telecommunication, SWIFT) is ostensibly a non-profit organization. Yet, its first CEO was a former executive of American Express and its data centers are in the US, Netherlands, and Switzerland.
According to critics, the SWIFT’s status changed after 9/11, when the Bush administration, true to its unipolar stance on US security and defense, seized the payments network as an added tool in “coercive diplomacy.” In the Trump era, coercive diplomacy has been expanded in US economic engagements.
In the interdependent global economy, international trade and finance are two sides of the same coin. Cross-border trade transactions rely on an effective international payments system and a robust network of financial institutions issuing credit.
That infrastructure remains built around US dollar, which the Trump administration would like to leverage to contain China’s rise.
In the postwar era, the Japanese yen's might peaked in the mid-1980s, when Tokyo agreed to a managed trade deal in New York City's midtown Plaza Hotel. The controversial pact led the US, France, West Germany, the UK and Japan to depreciate US dollar relative to the Japanese yen and Deutsche mark by intervening in the currency markets.
Through the Trump years, China has resisted protectionism and trade wars. But as a defensive measure, Beijing may now be forced to prepare against the risks of being cut off from the US dollar payment system.
Under the US dollar payment system, China remains vulnerable to potential US sanctions.
As long as China holds $1.1 trillion in US treasury bills and large investments that remain denominated in US dollars, exposure remains high. Over time, Beijing can diversify away from some of these bills and investments, while internationalization of the renminbi would reduce reliance on the US dollar.
China is preparing for currency swap facilities as part of the Belt and Road Initiative (BRI) and in the Regional Comprehensive Economic Partnership (RCEP) with many Southeast Asian countries.
Similarly, according to a recent report, sovereign wealth funds expect China to remain in the economic driving seat, despite the Trump administration’s cold wars.
Thanks to the long-term potential of Chinese economy and finance, renmibi’s role as a global reserve currency and its rising attractiveness for international transactions, the time is right for accelerated internationalization. As China is now the first major economy to defuse the COVID-19 impact and is rebounding, global demand for renminbi assets is rising.
Read the full report at:
Trump White House Accelerating Toward a Dollar Crisis
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