From FAZ:
Der Euro und der Renminbi können in ihrer internationalen Bedeutung nicht mit dem Dollar wetteifern. Die amerikanische Währung bleibt an den Finanzmärkten der Maßstab.
Seit Jahren gibt es Berichte über eine nachlassende Bedeutung des Dollars als führende internationale Währung und über eine wachsende Bedeutung des chinesischen Renminbis. Tatsächlich bleibt der Dollar als internationale Währung dreimal so wichtig wie der Euro und noch ungleich wichtiger als der Yen, das Pfund oder der Renminbi. Darauf weist eine neue Arbeit der Ökonomen Menzie D. Chinn, Jeffrey A. Frankel und Hiro Ito hin. „Der bleibt die Nummer eins nicht nur mit Blick auf die Währungsreserven, aber auch als Fakturierungswährung im Welthandel, als Währung für internationale Schulden und Anleihen, als Währung im Devisenhandel und für globale Zahlungen“, schreiben die Ökonomen. Die Analyse zeigt vor allem, dass es dem Euro in keiner Weise gelungen ist, in eine ernsthafte Konkurrenz zur amerikanischen Währung zu treten. In den vom Internationalen Währungsfonds erfassten offiziellen Währungsreserven der Zentralbanken beträgt der Anteil des Dollars rund 60 Prozent. Der Euro folgt mit etwa 20 Prozent; die Anteile der übrigen Währungen sind dagegen kaum signifikant.
The paper is here.
Damned dernded fernerz and ther weird tungzez.
Baron Von Kopits would never let this heresy happen on his blog.
I was looking forward to reading your paper in German, but nooooo! Tricked me, you did! And I had to use one of this year’s free downloads.
The Frankfurter Algemeine is a pretty good pick-up. Congrats.
According to google translate [German to English]
“For years there have been reports of the dollar’s declining importance as a leading international currency and the Chinese renminbi’s growing importance. In fact, the dollar remains three times as important as an international currency than the euro and even more important than the yen, the pound or the renminbi. This is pointed out by a new paper by economists Menzie D. Chinn, Jeffrey A. Frankel and Hiro Ito. “It remains number one not only in terms of foreign reserves, but also as an invoicing currency in world trade, as a currency for international debts and bonds, as a currency in foreign exchange trading and for global payments,” write the economists. Above all, the analysis shows that the euro has in no way succeeded in entering into serious competition with the American currency. The share of the dollar in the official currency reserves of central banks recorded by the International Monetary Fund is around 60 percent. The euro follows with around 20 percent; The shares of the other currencies, on the other hand, are hardly significant.”
While on the subject of China – and my apology for the length of this beast – a few thoughts on the credit picture:
Every once in a while, I take a peak at the credit impulse index for a few economies. The index is a measure of credit growth relative to GDP, so you can get pretty much the same information from credit as a share of GPD over time, which is handy on FRED. So here credit to the private, non-financial sector as a share of GDP for the U.S, Eurozone, Japan and China:
https://fred.stlouisfed.org/graph/?g=1noyg
A few things stand out:
– Until 2016, Japan was the only economy in this group to top a credit ratio of 200%. China is now at 230%.
– Japan’s ratio rose above 200% just prior to the beginning of the 3-decade-long Lost Decade.
– The peak in the U.S. ratio, at 172%, came in Q3 of 2008. Y’all remember 2008, right?
Some observations, most of which won’t be new to anybody here:
Overvalued real estate was the result of excess credit growth in Japan and in the U.S. Overvalued real estate has been the result of excess credit growth in China.
High domestic savings helped facilitate excess credit growth in Japan and has helped facilitate excess credit growth in China. “Exorbitant privilege” allowed the U.S. to siphon off excess savings from Japan and China.
Access to savings did not protect Japan or the U.S. from the consequences of overvalued real estate and so far doesn’t seem to be helping China.
There’s probably a reason access to savings doesn’t help when the bubbles bursts. Richard Koo spilled a great deal of ink convincing the world that credit supply wasn’t the problem in Japan in the 1990s; credit demand was. He made the expression “balance-sheet recession” popular in time for the Great Recession, when bank reserves piled up at the Fed rather than being lent out. And nowadays, you can read things like this out of China:
‘”Credit demand has weakened compared to previous years…,” (PBOC Chief) Zou said’
https://www.reuters.com/world/china/chinas-cbank-says-has-policy-room-credit-demand-slows-2024-04-18/#:~:text=%22Credit%20demand%20has%20weakened%20compared,year%2Don%2Dyear%20growth.
When asset values fall, debt has to fall to keep balance sheets, ya know, balanced. So new borrowing is avoided, making monetary policy a relatively weak tool.
Japan’s Lost Decade was long, as was recovery from the Great Recession. Balance sheet restructuring takes a long time.
China’s debt is far larger as a share of GDP than for either the U.S. or Japan during their bubbles. Chinese households have a greater share of wealth in real estate than U.S. households did at the top, which suggests more balance-sheet repair will be needed in China than was needed in the U.S.
Lastly, private credit ratios for the U.S., Eurozone and Japan have most recently fallen (Uh Oh!), while China’s is rising. In fact, China’s credit impulse index is roughly flat in recent quarters, toward the low end of its historic range, but not at the bottom:
https://en.macromicro.me/charts/35559/china-credit-impulse-index
A not-bloody-awful credit impulse doesn’t solve the problem of extremely high debt-to-GDP, but it may put off the worst of the reckoning for now. And everybody likes putting off reckonings.
Thank you for for some good information and comparison.
At a more primitive level I am having a hard time figuring out who will end up holding the bag, if/when real estate in China falls. Let say all domestic real estate has a 50% drop in value after a crash. Its my understanding that some of the owners of even non-finished apartment are forced to continue monthly payments. If everybody is forced to continue payments on e.g., a $200,000 loans on a (now worth only) $100,000 apartment, then the only consequence is that people have much less saved than they thought (some may even have negative savings). In our housing crash the losses were transferred to the banks and bond holders because people could declare bankruptcy and shed their obligations – but can you do that in China? I seem to remember reports of owners of unfinished apartments stopping their payments in protest over the lack of a finished product, but I never saw a follow up as to whether they got away with that. Is it possible that borrowers, not banks, suffer the consequences of irresponsible lending?
Via Michael Pettis:
https://www.reuters.com/world/china/rapidly-ageing-china-millions-cant-afford-retire-2024-05-08/
Somebody remind me our other “white guy” CHina Expert.. Man, I really hate myself I always forget his name, he went silent on his blog because he helped the Biden White House?? What is wrong with me?!?!?!??
A big part of the formula often prescribed for China’s transition to a consumer-driven economy is a better retirement system.
Ivan identified a characteristic of any housing-driven balance-sheet recession in China; household balance sheets will be particularly badly hit. Delayed retirement. Keep saving high to pay mortgages that can’t be dealt with through bankruptcy or sale. Keep saving high to make up for wealth lost in a housing crash.
And, to repeat myself, in a balance-sheet recession, demand for credits low, so savings don’t do much for the domestic economy.
OMG, Brad Setser. What is wrong with my brain recently???
NOW I understand:
https://www.cnn.com/2024/05/08/politics/rfk-jr-mercury-poisoning-brain-parasite/index.html
A worm got into the brain of RFK Jr. and ate part of it. Then it died (the worm).
My Dad used to play with Liquid Mercury when he was a kid. It would have probably been in the 1930s. He played with it with his hands. Nobody knew the danger then, certainly not in rural Iowa. lived to 85.
https://www.youtube.com/watch?v=jgFqYlfBvw8