1/6 Sorry for going on about this too often, but in recent weeks it seems that the idea of digital currency has made people giddy: “The question is not whether China’s CBDC will upend the current rules of global trade and commerce," says one of them.
2/6 The only question is how how far-reaching the ramifications will be across issues related to who controls access to capital and its movements.”
Yikes. In fact it isn't clear at all that CBDC will much change, let alone upend, the current global trade regime.
3/6 The reasons the RMB plays such a disproportionately minor role in global trade (China is 15% of global GDP and 15% of global trade, but its currency is less than 3% of FX trade) has to do with the perfectly rational reluctance of Beijing to give up control of domestic...
4/6 financial markets and its inability suddenly to switch from massive net exports of excess savings to massive net imports. Such a switch would set off a rapid and disruptive rebalancing of the economy that would, among other things, cause the manufacturing sector to collapse.
5/6 In fact Beijing is already very worried about the monetary consequences of rising financial inflows even though it is still a net exporter of savings. Do we really think that, because of the digital RMB, Beijing will suddenly decide that it no longer cares about domestic...
6/6 financial stability and is willing to see its export sector collapse?
Surprisingly enough, those who argue that a CBDC will change the global trade and capital regime never address either of these very fundamental issues.
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1/6 Central banks held $287 billion worth of RMB, representing 2.45% of total global reserves. For comparison purposes, USD comprised 59.54%, euros 20.57%, Japanese yen 5.89%, sterling 4.70%, Canadian dollars 2.1%, Aussie dollars 1.8% and SFR 1.7%.
2/6 It is interesting that it is only in the anglophone economies that the reserve share of their currencies substantially exceeds their share of global GDP. The main exceptions are Japan, whose currency share is just a little above its GDP share, and Switzerland, whose...
3/6 outsized banking sector and very peculiar history has long made the SFR a safe-haven currency. Otherwise it is noteworthy that only the currencies of the anglophone economies play such an disproportionately important share of global trade and reserves.
1/11
I don't think this is correct: "A successful rollout of the digital renminbi, which will be firmly under the control of the PBoC, is likely to make the Communist party more comfortable with relaxing controls because...
2/11
the authorities will have full visibility over two-way flows."
You cannot simultaneously ease restrictions on capital flows and tighten them. If digital RMB is a better medium of exchange than non-digital RMB, it must be because of lower transaction costs and...
3/11
fewer restrictions on trading and settling. These easier conditions won't matter much to fundamental investment flows and will matter only a little to trade-related flows, but they will have a huge positive impact on speculative flows and flight capital, and they will...
1/4 Yes, you're right, but this goes against the very important point Keynes made at Bretton Woods. A global trading regime in which imbalances are resolved by contracting demand in the deficit countries rather than by expanding demand in...
2/4 the surplus countries means a global economy with less growth, more debt, and in which adjustment costs are disproportionately borne by those with lower incomes (in both the surplus and the deficit countries).
3/4 The fact that surplus countries can force most of the cost onto deficit countries doesn't mean that deficit countries should (or can) imitate the surplus countries by lowering their own wages to match the wages (relative to productivity) of the surplus countries.
1/7 "Through the mid-2000s, the U.S. was the main locomotive for global growth, until China’s explosive expansion provided a second, and often leading, driver of the world’s economy."
A confused part of what is otherwise a good article.
2/7 A country's arithmetical share of global growth is not the same as its contribution to global growth. Beijing itself recognizes that domestic demand in China is weak because of the way domestic income is distributed, and countries...
3/7 whose weak domestic demand powers large trade surpluses are not engines of global growth. They reduce global growth because their trade surpluses represent the exporting abroad of their domestic demand deficiencies.
1/5 Very interesting article by Avinash Persaud (@AvinashPersau15) on a mechanism that automatically extends debt payments for some period of time in case of a crisis that makes debt servicing impossible or difficult for a sovereign borrower:
2/5 "Under this style of clause, when an independent organisation declares that a natural disaster has occurred, debt service is immediately suspended for two years, with the payments added back at the end of the term of the loan or bond."
3/5 I would favor partial debt forgiveness rather that what Persaud calls an NPV-neutral structure, but either way, poor countries with a limited safety margin should not be forced into financial distress that compounds their problems when adverse events beyond their...
1/11
In the second part of his important speech, Zhou Chengjun, the PBoC’s head of research, argues that “an international currency’s exchange rate arises from the large number of transactions conducted by currency holders around the world.
2/11
It is not decided by the central bank that issues the currency. Aside from that issuance, the central bank has no decision-making power.” He goes on to conclude that “we have no choice but to acknowledge that in the context of RMB internationalization, we can’t control...
3/11
its exchange rate, and the PBOC would ultimately relinquish any hopes of determining its exchange rate.”
This is an important point in a heated debate within China about the extent to which Beijing will allow international considerations to trump domestic ones.