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Daniel McDowell Profile picture
Daniel McDowell
@daniel_mcdowell
Family man | Professor @MaxwellSU | Sr. Fellow @AtlanticCouncil | Fmr. China Fellow @TheWilsonCenter | Tweets: Geoeconomics, Finance, & Cleveland sports
3 subscribers
May 23 • 5 tweets • 2 min read
The longstanding, misplaced fear that China could one day sell off its vast Treasury holdings to trigger a dollar crisis is silly, not only because such a move would harm China's interests, but also because a 1977 law gives the US president the power to stop this exact thing. Image What's interesting here is that the modern legal foundation for the US gov'ts capacity to sanction by freezing foreign gov't assets (w/in domestic & overseas US financial institutions) is based on a law passed b/c of fears of coordinated OPEC dollar sales.
Feb 25 • 8 tweets • 2 min read
The secondary sanctions that apply are quite narrowly focused on industries also targeted under the export control regime. My guess is that the Biden admin learned export controls alone weren't preventing Russia from acquiring critical military components, in part, because...
1/
Image ...banks in non-Western countries were willing to clear Russian payments for these goods. If those banks don't operate in countries that are party to the financial sanctions regime, there was no consequence for doing this. The secondary sanctions change this. Now, those...
2/
Jun 15, 2023 • 4 tweets • 2 min read
More evidence that Russia is conducting cross border payments in yuan with countries *other than* China.

Dividend payments to Japanese investors in Sakhalin 1 and 2 oil development projects, previously made in USD, are now cleared in yuan.

Link: asia.nikkei.com/Politics/Ukrai…

1/ Per the report, Gazprombank has stepped in to handle the yuan payments as other financial institutions turn up their noses at processing Russia-related cross border USD payments.

2/ Image
May 4, 2023 • 11 tweets • 5 min read
This report from last week insinuates that the RMB has become the top currency in China's cross-border transactions, surpassing the dollar for the first time ever. Here's a short 🧵on why that is misleading. 1/

Link: bloomberg.com/news/articles/… Image First things first, these data only reflect the currency composition of *CHINA's* cross-border transactions. This is not about USD vs RMB in a global sense. Though obvious to most, its worth pointing this out because at first glance someone might draw the wrong conclusion. 2/
Apr 27, 2023 • 9 tweets • 3 min read
When we talk about RMB internationalization, we're mostly talking about the growing role of RMB in China's own int'l transactions, not its use in trade b/w third countries. This story is a (still rare) example of RMB use in a deal not involving China 1/
washingtonpost.com/world/2023/04/… Using RMB to settle this deal between Bangladesh and Russia remains something of an anomaly. But it does raise the issue of how sanctions could necessitate more RMB trade settlement. The decision by Bangladeshi authorities appears to be a direct consequence of sanctions. 2/ Image
Apr 22, 2023 • 17 tweets • 4 min read
In light of the Stephen Jen analysis drawing attention to (and I think overstating) the USD's long-term slide in global reserves since ~2000, I suggest one potential factor behind reserve diversification: improvements in reserve adequacy.
bloomberg.com/news/articles/… There are more complex ways of measuring reserve adequacy (see link) but the traditional "rules of thumb" are that central banks (CBs) should hold enough reserves to cover ~3-months of their country's imports or all of its short-term debts. 1/16

imf.org/external/np/sp…
Mar 23, 2023 • 34 tweets • 17 min read
"Bucking the Buck" is officially out. Here is a 🧵describing what you'll find in the book. 1/18 First, what the book is *not* about: It does not make doomsday predictions about the dollar. To the contrary, it argues💵dominance is likely here to stay. Yet, US financial sanctions still generate blowback that could weaken their effectiveness in the future! 2/18
Mar 20, 2023 • 4 tweets • 1 min read
This is a toughie for me. Summers is is right that *if* this happens, it must be coordinated to prevent the stigma from being dollar-centric. Even then it would be a game changer, moving from asset "freezes" to straight-up asset seizure. Which raises another question:

1/ Normatively speaking, who is the rightful owner of the $300 bn currently frozen? Putin's regime? Or the people of🇷🇺? In a technical sense, these are🇷🇺state assets. Seizing them means confiscating wealth from future (potentially reform-minded)🇷🇺gov'ts, & the people generally 2/2
Feb 23, 2023 • 7 tweets • 5 min read
With the one-year anniversary of the Russian invasion of Ukraine approaching, there are a multitude of new pieces on sanctions to read. If you're looking for a weekend reading list, read on...

1/ First, this fantastic report by @CSIS' @gdp1985 & @ALPalazzi is perfect for a long Sunday read. It covers all the angles: trade, budgetary, and financial impacts of sanctions. The section on lessons for the potential use sanctions against 🇨🇳 is very sharp

csis.org/analysis/beari…
Feb 23, 2023 • 7 tweets • 3 min read
🇯🇵 media report cites growth in the use of China's RMB Cross-border Interbank Payment System (CIPS) since the 🇷🇺 invasion of 🇺🇦
www3.nhk.or.jp/nhkworld/en/ne…

- 100+ new banks joining system
- 50% increase in # of daily settlements

How does this growth compare to the past?

Short 🧵 Starting w/ the reported 50% 👆in # of daily settlements:

For comparison, in '21, the # of transactions grew from ~13K to 15K, or ~15% increase. A jump to 21k by end '22 would = the largest annual increase (in absolute terms) on record

(Chart from PBOC 2022 RMBI report)

2/
Jan 16, 2023 • 19 tweets • 5 min read
For decades, experts have been calling attn to risks to globalization. Econ integration is fragile, they argued, b/c politics could undo the transnat'l effort to make markets ever more efficient. They were right to focus on politics but largely missed the security angle. Why? A🧵 Today, the @WSJ published this piece which captures the current globalization zeitgeist. Global supply chains--the sinews of int'l econ integration--are being disassembled & shortened, as gov'ts & corporations grow wary of security risks 2/ wsj.com/articles/globa…
Oct 24, 2022 • 6 tweets • 4 min read
Xi's political strength is China's financial weakness, a 🧵

With his 3rd term now official, foreign investors sold a record amount of Chinese equities Monday, causing markets & the RMB to tumble.

As China becomes more authoritarian, foreign capital is voting with its feet.

1/ Image What's going on here? By cementing himself in power, Xi has cemented expectations that Chinese financial and economic policies will continue to trend in an anti-market direction.

Link: bloomberg.com/news/articles/…

2/ Image
Oct 4, 2022 • 16 tweets • 4 min read
A 🧵 on
- Renminbi internationalization (RMBI)
- Russia sanctions
- Chinese data
1/ Let's begin here. @Aligarciaherrer is correct to point out that (1) there's been RMBI hype since the start of the war & (2) SWIFT data imply little/no change in RMB use for cross-border payments.

But does SWIFT data give us an accurate picture?

2/
Oct 3, 2022 • 5 tweets • 1 min read
Plaza Accord happened because of the 💪💵's effect on US current account. US exporters (farmers, manufacturers) lobbyed Congress for trade protection. SecTreas James Baker saw "prarie fire" of protectionism. Only then did Reagan Admin relent & back a multilateral intervention 💪💵 is an asset for the Fed in its efforts to bring down inflation. Coordinated multilateral intervention that weakens the 💵 (leaving aside questions about whether this actually works beyond a temporary effect) would undermine the very goal it is working towards.
Jul 19, 2022 • 4 tweets • 2 min read
Short 🧵on this great @Reuters reporting:

Russia is asking India to settle oil payments in UAE dirhams to avoid sanctions. At least two Indian refiners have already done so with the help of a Dubai correspondent bank.

1/4
reuters.com/business/energ… In the recent (pre-war) past, India started paying for more oil in Russian rubles. Dirhams may seem like an odd choice, but UAE has ties to both sides that likely make this work.

2/4
Jun 6, 2022 • 13 tweets • 4 min read
Short 🧵on negative security externalities of sanctions targeting Russia. @nytimes & others have been doing some great reporting on Russian-backed violence in Africa. One key motive: Russia's thirst for gold--an asset that's quite difficult for the West to sanction. 1/ First, quick background. The Central Bank of Russia began beefing up its gold reserves following US sanctions in 2014, following Russia's invasion of Crimea. 2/ Image
Apr 3, 2022 • 16 tweets • 4 min read
The Bucha Massacre has some calling for even tougher sanctions on Russia. Contrary to how sanctions have been portrayed, the Russian financial system is not completely isolated. Sanctions could be intensified. Here’s how, using air travel to illustrate. 🧵 First, some background. Since 2/22/22, the US blocked 7 major Russian financial institutions from transacting with all banks with US operations (i.e. most big global banks). In terms of size, 5 of the largest 9 Russian banks by total assets are in this group of 7 (see below) 2/
Mar 31, 2022 • 10 tweets • 4 min read
There's been a flurry of big-name commentary on sanctions & de-dollarization over the past few days. Just a few examples:

Tooze: adamtooze.substack.com/p/chartbook-10…

Gopinath: ft.com/content/3e0760…

Wolf: ft.com/content/f18cf8…

A short 🧵 with a few of my thoughts. First, headlines are often misleading. A title that suggests the dollar is doomed surely gets more clicks than something more subtle. In these cases, the arguments are actually pretty reasoned. For example, here's what Gopinath had to say:

2/
Mar 30, 2022 • 9 tweets • 2 min read
Don't led the headline fool you. This is not your cliche "dollar doomsayer" piece. I think @martinwolf_ gets its about right when it comes to the impact of US sanctions on the international currency hierarchy.
ft.com/content/f18cf8… Wolf isn't sanguine about RMB's chances of dethroning $ as reserve currency. He basically dismisses that idea & I think that's right. If anything, the events in Ukraine will further delay financial liberalization in China, weakening RMB investment appeal
Mar 29, 2022 • 9 tweets • 3 min read
This story highlights how foreign investors' perceptions of China's financial system have soured over the last year. Things were already trending in the wrong direction pre-Ukraine invasion, but that has made things worse.

1/

bloomberg.com/news/articles/… Before the Russian invasion, foreign investors were already growing skittish about investment in China because of Xi’s aggressive, some might say unpredictable, crackdown on various tech sectors.

2/

bloomberg.com/news/articles/…
Mar 10, 2022 • 11 tweets • 4 min read
One common ? RE: Western sanctions is: How will the Russian public react? If sanctions are costly, won’t this turn Russian public opinion against Putin? Political scientists studying economic coercion have long debated this. The most recent work isn’t encouraging on this point🧵 On one side are those in the “deprivation hypotheses” camp: Sanctions will reduce public support for the targeted regime due to rising economic costs. Public pressure should help induce the target state to comply with the sender’s demands. 2/