“Internationalization of the Yuan”

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CIPS vs. CRISPS

Slow loss of meaning

Talking to philosophers, psychologists and psychiatrists

Icon image: Pixabay

The Chinese fear dollar inflation

To counteract the economic consequences of the corona crisis, the US Federal Reserve Bank has increased its total assets by $ 2.9 trillion since mid-March alone. They add to about $ 8 trillion that the FED virtually printed in the years after the 2008 financial crisis. So far, this has not led to greater inflationbecause wages and prices did not rise to the same extent. Chinese state managers such as Fang Xinghai, the deputy head of the Chinese securities regulator CSRC, and Guo Shuqing, the chairman of the banking regulator CBRC, believe however, that it won’t stay that way indefinitely.

Both also fear that dollar inflation could not only have a negative impact on US citizens, but also on China. Not only because of the investments in US government bonds (the volume of which the People’s Republic reduced by around 60 billion in 2019 and which it is difficult to break down more quickly without risking major distortions), but also because of the current architecture of the world financial system. They therefore rely on the “internationalization of the yuan”.

In order to promote them, China already called the “Cross-Border Interbank Payment System” in 2015 CIPS into life – an alternative to the “Clearing House Interbank Payment System” (CHIPS) of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). This organization, founded in 1973, regulates international payments – in dollars. CIPS, on the other hand, runs with yuan.

So far, however, the Chinese system is not entirely independent of SWIFT, but uses its communication channels. They will China Securities chief economist Zhang Anyuan said but will soon be out of date – also because of the increasing importance of cryptocurrencies. According to Zhang, his successor has to give the yuan significantly more importance than SWIFT is currently doing.

He is also referring to the board of directors of the organization, where the USA has the most seats for historical reasons. Therefore, they can also use the organization for political goals by enforcing or at least threatening to de-couple countries there. Russia has launched the SWIFT alternative SPFS because of such threats after the Crimea crisis, which last year joined the Chinese CIPS connected.

So far, the Americans have not threatened the Chinese with as direct a decoupling from SWIFT as the Russians – but a paper entitled The Republican Studies Committee’s Task Force on National Security and Foreign Affairs published in June Strengthening America & Countering Global Threats explicitly names the measure as a legitimate foreign policy instrument.

Not only Chinese state managers, but also American analysts such as Stephen Roach have recently come to the conclusion that after almost 60 years, Valery Giscard d’Estaing’s prophecy that the dollar’s time as the world’s reserve currency will pass is still possible. In an essay for the business news portal Bloomberg the Yale economist believes it is possible that the American budget deficit, which had risen to a record high of 17.9 percent of gross domestic product in the wake of the corona crisis, combined with an extremely low saving rate among American households compared to an international loss in value of a good third within the next two years.

So far, the farewell of the dollar as the key currency has been rather slow: in the past 20 years, it has lost shares – but only a good eight points from over 70 to just under 62 percent. This also has to do with the crises during this time, in which investors keep coming back adhered to the old rule of thumb that the “greenback” rises in price at such times.

Contrary to the dreams of EU politicians, the winner of the gradual loss of dollar importance was not only the euro (the amount of which the ECB also increased sharply and its share has decreased from 28 to about 20 percent in the past 15 years), but also the yuan and ” Commodity currencies “like the Australian dollar. The (not so new anymore) cryptocurrencies however, fluctuate significantly in price, which, despite its partially built-in inflation security, only appears to a very limited extent as safe havens in times of crisis.
(Peter Mühlbauer)

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