The Dollar’s Fragile Hegemony

The Dollar’s Fragile Hegemony

By KENNETH ROGOFF

Kenneth Rogoff, is the Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash. He says, "Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow."... see it as follows...

The mighty US dollar continues to reign supreme in global markets. But the greenback’s dominance may well be more fragile than it appears, because expected future changes in China’s exchange-rate regime are likely to trigger a significant shift in the international monetary order.

For many reasons, the Chinese authorities will probably someday stop pegging the renminbi to a basket of currencies, and shift to a modern inflation-targeting regime under which they allow the exchange rate to fluctuate much more freely, especially against the dollar. When that happens, expect most of Asia to follow China. In due time, the dollar, currently the anchor currency for roughly two-thirds of world GDP, could lose nearly half its weight.

Considering how much the United States relies on the dollar’s special status – or what then-French Finance Minister Valéry Giscard d’Estaing famously called America’s “exorbitant privilege” – to fund massive public and private borrowing, the impact of such a shift could be significant. Given that the US has been aggressively using deficit financing to combat the economic ravages of COVID-19, the sustainability of its debt might be called into question.

The long-standing argument for a more flexible Chinese currency is that China is simply too big to let its economy dance to the US Federal Reserve’s tune, even if Chinese capital controls provide some measure of insulation. China’s GDP (measured at international prices) surpassed that of the US back in 2014 and is still growing far faster than the US and Europe, making the case for greater exchange-rate flexibility increasingly compelling.

A more recent argument is that the dollar’s centrality gives the US government too much access to global transactions information. This is also a major concern in Europe. In principle, dollar transactions could be cleared anywhere in the world, but US banks and clearing houses have a significant natural advantage, because they can be implicitly (or explicitly) backed by the Fed, which has unlimited capacity to issue currency in a crisis. In comparison, any dollar clearing house outside the US will always be more subject to crises of confidence – a problem with which even the eurozone has struggled.

Moreover, former US President Donald Trump’s policies to check China’s trade dominance are not going away anytime soon. This is one of the few issues on which Democrats and Republicans broadly agree, and there is little question that trade deglobalization undermines the dollar.

Chinese policymakers face many obstacles in trying to break away from the current renminbi peg. But, in characteristic style, they have slowly been laying the groundwork on many fronts. China has been gradually allowing foreign institutional investors to buy renminbi bonds, and in 2016, the International Monetary Fund added the renminbi to the basket of major currencies that determines the value of Special Drawing Rights (the IMF’s global reserve asset).

In addition, the People’s Bank of China is far ahead of other major central banks in developing a central-bank digital currency. Although currently purely for domestic use, the PBOC’s digital currency ultimately will facilitate the renminbi’s international use, especially in countries that gravitate toward China’s eventual currency bloc. This will give the Chinese government a window into digital renminbi users’ transactions, just as the current system gives the US a great deal of similar information.

Will other Asian countries indeed follow China? The US will certainly push hard to keep as many economies as possible orbiting around the dollar, but it will be an uphill battle. Just as the US eclipsed Britain at the end of the nineteenth century as the world’s largest trading country, China long ago surpassed America by the same measure.

True, Japan and India may go their own way. But if China makes the renminbi more flexible, they will likely at the very least give the currency a weight comparable to that of the dollar in their foreign-exchange reserves.

There are striking parallels between Asia’s close alignment with the dollar today and the situation in Europe in the 1960s and early 1970s. But that era ended with high inflation and the collapse of the post-war Bretton Woods system of fixed exchange rates. Most of Europe then recognized that intra-European trade was more important than trade with the US. This led to the emergence of a Deutsche Mark bloc that decades later morphed into the single currency, the euro.

This does not mean that the Chinese renminbi will become the global currency overnight. Transitions from one dominant currency to another can take a long time. During the two decades between World Wars I and II, for example, the new entrant, the dollar, had roughly the same weight in central-bank reserves as the British pound, which had been the dominant global currency for more than a century following the Napoleonic Wars in the early 1800s.

So, what is wrong with three world currencies – the euro, the renminbi, and the dollar – sharing the spotlight? Nothing, except that neither markets nor policymakers seem remotely prepared for such a transition. US government borrowing rates would almost certainly be affected, though the really big impact might fall on corporate borrowers, especially small and medium-size firms.

Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow.

You may see in the Second paragraph, the professor says, in Chinese, "出於多種原因，中國當局可能會在某一天停止將人民幣與一籃子貨幣掛鉤，並轉向允許匯率更加自由浮動（尤其是兌美元匯率）的現代通脹目標制。一旦出現這種狀況，亞洲大部分地區很可能都會追隨中國。屆時，目前作為全球約三分之二國內生產總值（GDP）錨定貨幣的美元，可能會失去近一半權重。", to be frank, It is possible, not far away.

S. L. LI   Engineer
HKFDP

香港建設專業聯會

** 博客文章文責自負,不代表本公司立場 **

先看一則美國新聞：6月16日，美國聯邦地區法官宣布，美司法部對The University of Tennessee田納西大學前研究人員、華人教授胡安明的起訴案流審，陪審團無法對胡是否有罪達成一致；而美國聯邦調查局FBI在該案中針對胡安明的一系列惡劣行為在庭審記錄中被曝光～胡教授曾在北京工業大學為學生和研究人員授課20小時，他們就錯誤地指控胡教授“為中國從事間諜活動”。據《華盛頓郵報》17日報導，案件流審讓這個特朗普時期啟動的項目再次遭到廣泛質疑。

再看香港新聞：之前，港台《視點31》主持利君雅不獲續約，《鏗鏘集》編導蔡玉玲被停工. 稍微有政治意識的人都知道，他們的政治立場反中反共，這違反中國憲法，抵觸一國原測，違反港台約章。因此，其被調離合情合理。

近日，港台第二台《瘋Show快活人》主持曾志豪日前在節目後獲通知被即時解僱。港台解釋這是配合二台成立40周年而變革，但曾志豪指安排倉卒、不合理，亦認為是打壓，曾志豪曾主持的《頭條新聞》早前也被停播。筆者認為，港台早該這樣做了。如曾志豪在美國，以針對中國的方式針對美國，他一早就被 FBI 或CIA拘捕調查了。

港台由3月至5月共有18名公務員離職，當中9人辭職。這批人，明目張膽地顯示表達自己的反中政治立場，言論清晰地支持美國勢力，比如：講述美國的政客支持香港黑暴；支持美國軍隊鎮壓美國的反種族歧視示威..... 。也就是說，這批人支持美國 ，從不針貶美國，只攻擊港府丶攻擊中國，因此，他們是美國當局的代理人丶應聲蟲以及傀儡。

港台工會質疑，有關安排是對人不對事，做法粗暴、絕情，極不尊重，”主持未有機會跟聽眾道別，等同視聽眾如無物“。筆者認為這個工會，路人皆知其反中立場，同樣是美國政府在香港的內應及代理人。

曾志豪說他早有預備自己會被換走，但稱沒想過來得這樣快，港台行徑讓人無辦法不認為是打壓，亦對連累貴花田感遺憾。他指港台不近人情、「好心急、害怕」，似乎擔心若提早讓他知消息，他會在節目說出其他東西，這代表港台"心虛"。筆者認為他早有預備自己會被換走，這才代表他心虛，因為他做盡惡意攻擊中國的壞事，從不敢攻擊美國之壞行，反而支持美國。 他應該知道，不是不報時辰未到，因此他才有預備被撤走的說法。

香港的任何主持人，都應該遵守法律，應對各方抱持平態度的原則。 在守法前提下，如果批評中國的不是，如果他們不批評美國的不是，只支持美國，卻不斷攻擊中國，那他其實是美國當局的內應傀儡，將會受到制裁。大家應該以上面這批黃人為鑑。

蘇智成測量師 張偉強工程師
香港建設專業聯會理事