Mark Sobel, former Treasury Deputy Assistant Secretary, Executive Director at the IMF, current US Chair of OMFIF and senior adviser at the CSIS , presented his views on the future of the international monetary system on Tuesday. The video is now available, here.
Sobel provided the audience a policymaker’s perspective on the realities of dollar dominance – the why’s as well as who’s and what’s. Major issues of past and present – such as currency misalignment, dealing with sovereign debt crises, and the ramifications of using economic sanctions – were discussed. A lively exchange with Mark Copelovitch, myself, and the audience ensued, starting with the topic of dollar dominance. I discussed in my presentation the fact There Is No Alternative to the dollar as key currency (Mark Sobel provided the succinct abbreviation TINA in his presentation). Mark Copelovitch highlighted that no interest in the US for relinquishing the role of the dollar as key international currency.
The entire talk is here.
There’s part of this Politico story that makes me chuckle a little. The whole, as the author Rachael Bade put it “Mean Girls” melodrama in it.
https://www.politico.com/news/2023/04/07/kevin-mccarthy-debt-limit-blame-00090979
But even before I listened intently to Mr. Sobel’s, Menzie’s, and Professor Copelovitch’s thoughts on probability of default, I noticed in the Politico description of the relationship between McCarthy, Arrington, and Scalise, and the different Republican factions, some very distinctive dark clouds. As I read the Politico on this “Mean Girls” cat fight, my mind went back to the very recent recollection of the House voting for the Speaker. Am I supposed to believe these folks are going to learn to act like adults only months after embarrassing themselves to the entire nation?? Maybe the probability of default is still low, but based on that article and the cluster____ of the vote for Speaker, AND the fact McCarthy made no effort to refute the NYT article that Bade made reference to in her well written story, I would argue the chances of U.S. default is higher than it has ever been.
Here is the book Mr. Sobel made reference to.
https://www.piie.com/bookstore/cashless-revolution-chinas-reinvention-money-and-end-americas-domination-finance-and
I enjoyed the main speaker and the two panelists so much. It’s not often you feel edified and entertained at the same time, but these three gentleman did it. Hats off to the three of them.
https://en.wikipedia.org/wiki/There_is_no_alternative
“There is no alternative” (TINA) is a slogan strongly associated with the policies and persona of the Conservative British prime minister Margaret Thatcher.
In a speech to the Conservative Women’s Conference on 21 May 1980, Thatcher appealed to the notion saying, “We have to get our production and our earnings into balance. There’s no easy popularity in what we are proposing but it is fundamentally sound. Yet I believe people accept there’s no real alternative.” Later in the speech, she returned to the theme: “What’s the alternative? To go on as we were before? All that leads to is higher spending. And that means more taxes, more borrowing, higher interest rates, more inflation, more unemployment.”
The slogan was often used by Thatcher.
https://english.news.cn/20230408/dff405bf84744f1f948a0f436a47e81b/c.html
April 8, 2023
U.S. dollar to play much less dominant role within decade: U.S. economist
The share of the United States in the world economy will be less and the role of the U.S. dollar will naturally diminish, because other currency settlements will take a hold, said Jeffrey Sachs.
NEW YORK — The U.S. dollar will play a much less dominant role than it is today within the next ten years due to a smaller share of the U.S. economy in the world, weaponization of the U.S. dollar and the use of central bank digital currencies, said a renowned U.S. economist on Friday.
The share of the United States in the world economy will be less and the role of the U.S. dollar will naturally diminish, because other currency settlements will take a hold, said Jeffrey Sachs, an economics professor and director of the Center for Sustainable Development at Columbia University at the 15th Annual Columbia China Summit.
Speaking at an online session of the meeting, Sachs noted that the international payment system now is based on U.S. dollar, with 50 percent to 60 percent of international trade settlements based on U.S. dollar or denominated in U.S. dollar, and about half of international reserves based on U.S. dollar.
The U.S. share of the world economy in purchasing terms is around 15 percent, so the role of the U.S. dollar is far larger than the role of the U.S. economy and the role of the U.S. dollar is a kind of historical role, said Sachs.
The role of the U.S. dollar reflects the power of the United States, especially in the 20th century, added Sachs.
As the U.S. dollar became a political weapon by the United States in confiscating foreign exchange reserves of Russia, Venezuela and Iran, lots of countries don’t want to keep their money in dollars anymore, said Sachs.
This is because “they don’t trust the United States and they think the United States is going to confiscate their currency, especially if they get in some kind of foreign policy disagreement with the United States,” Sachs said.
Moreover, the role of the U.S. dollar is based to a significant extent on the U.S.-dollar-based commercial banking system as the payments are largely settled through commercial banks.
In the future, payments are going to be settled digitally through central bank digital currencies, said Sachs.
Digital renminbi, which is an experiment now at the retail level within China, will end up being an international payments system settlement, Sachs said….
Which useless institution is paying Jeffrey Sachs to loan out legitimacy to this week?? Jeffrey’s about a half step away from telling us the use of fluoride toothpaste is brainwashing NATO officials.
I kinda figure Mark Sobel and Menzie Chinn are already well-versed in the following. On the small chance that they are not, I found it very edifying and fascinating myself:
https://www.ft.com/content/de2a1d15-97f2-4daa-920a-770047d606c3
From the Ingvild Borgen and Kelly Chen authored post on FTAlphaville blog
The crazytown scenario
“Let’s be unrealistic for a second and assume that Saudi Arabia agrees to accept payments in renminbi for all of the oil it sells to China. Even if it did — and the volumes traded in the renminbi futures market increased by 88 times that much — Shanghai would still only account for 7.1 per cent of the global total.
Taking it an even bigger step further, let’s assume that all of China’s oil imports are settled in renminbi. This would (based on the same assumptions) result in the share of renminbi-based oil futures contracts rising to 15-20 per cent of the global total. The remainder would still be denominated in US dollars.
These back-of-the-envelope calculations show how even in an extreme scenario where China purchases all of its oil in renminbi, the US dollar would still be dominant in oil trading.”
It continues:
“China cannot “internationalise” its currency simply by paying for all of its oil imports in renminbi. It has to convince third parties to trade in renminbi as well. Even if more Russian barrels are settled in renminbi, this wouldn’t make the INE a global crude oil benchmark either.”
Based on Sachs’ recent professional history, it should surprise no one that Jeffrey Sachs sells off the modicum of personal credibility he has left.
Of course, Thatcher was using this argument as political persuasion, pretending it was a statement of fact.. Here, it’s actually meant as a statement of fact.
I was at a used books sale (small town library fundraising) about 3 years ago. They had a very thick Margaret Thatcher biography there you could pick up for $1 and I stopped to think about it for 20–30 seconds. I thought “at the very least this must have some interesting details of history in it”, then paused and thought “the b*tch was friends with Reagan” and I just couldn’t see spending the dollar.
This episode of “Useless Thoughts From Jack Handey” brought to you by Medicare Advantage plans: For those who like screwing themselves.
Another thought I had watching the tail end of the discussion. I thought Menzie’s point about the bureaucratic control of Beijing effecting China’s opening up and the free mobility of capital, and that being always a strong sticking point, is something that is “pretty obvious” but one that people often miss. It doesn’t quite register with most people the degree of importance the communist party hierarchy puts on control. And then Mr Sobel said (paraphrasing) “…… and the creation of a current account deficit”. I don’t mean to say that Beijing would be dancing in the streets over a current account deficit—but I don’t think Beijing would have as big a problem with China running a current account deficit, if that deficit was/is untethered from control of the general populace of China.
When you look at the amount of domestic debt China had rung up with real estate bubbles, government overspending on construction/public infrastructure, insurance company shenanigans~~~I don’t think Chinese are as “fiscally restrained” as outsiders often imagine. Chinese save tons in their personal/family accounts because they must save, with no social security or retirement safety net like our social security etc. Chinese peoples huge level of savings is only “cultural” in the sense they have to save.
In other words….. If Beijing could keep control of its populace while running a current account deficit, I don’t think they give a whole lot of damn about running a current account deficit. The one is tied to the other. If you thought of it in an equation sense~~trade deficit is the independent variable, “government control” is the dependent variable~~~effected by “we [ Beijing ] don’t have manipulative/intimidation control over our own populace if we allow the free movement of capital”.
I keep adding these links, but I really do think they are pretty good quality and pertinent to this specific thread. I would copy/paste the highlights, but I think I pushed it as far as I wanna go with my other text lifts without asking for permission from FT, so you know, if you can get around the paywall to read this link I think it’s worth it:
https://www.ft.com/content/6d5bbdbc-9f5d-41b2-ba80-7d8ac3973cf3