1/9
"'Every night I ask myself why all countries have to base their trade on the dollar,' Lula said in an impassioned speech at the New Development Bank in Shanghai. 'Why canβt we do trade based on our own currencies?'"
ft.com
"'Every night I ask myself why all countries have to base their trade on the dollar,' Lula said in an impassioned speech at the New Development Bank in Shanghai. 'Why canβt we do trade based on our own currencies?'"
ft.com
2/9
I agree fully with Lula that the world should stop using the dollar as its dominant currency but, needless to say, for completely different reasons.
Global trade is incredibly unbalanced, and embodies some of the highest levels of protectionism perhaps in history.
I agree fully with Lula that the world should stop using the dollar as its dominant currency but, needless to say, for completely different reasons.
Global trade is incredibly unbalanced, and embodies some of the highest levels of protectionism perhaps in history.
3/9
What makes these imbalances possible is precisely the role of the US dollar and, to a lesser extent, of sterling and the Canadian and Australian dollars, who together account for up to 70-80% of global trade deficits, mainly because of the characteristics of their currencies.
What makes these imbalances possible is precisely the role of the US dollar and, to a lesser extent, of sterling and the Canadian and Australian dollars, who together account for up to 70-80% of global trade deficits, mainly because of the characteristics of their currencies.
4/9
Reducing the global role of the dollar would benefit both the US and the global economy by transforming the structure of global trade, but it will come at a cost to countries that depend on their surpluses to resolve weak domestic demand.
carnegieendowment.org
Reducing the global role of the dollar would benefit both the US and the global economy by transforming the structure of global trade, but it will come at a cost to countries that depend on their surpluses to resolve weak domestic demand.
carnegieendowment.org
5/9
The irony is that China has required trade surpluses for this reason for over two decades, and Brazil even longer.
Lula's question is very much a politician's question, in other words, and not that of someone who is familiar with the global balance of payments.
The irony is that China has required trade surpluses for this reason for over two decades, and Brazil even longer.
Lula's question is very much a politician's question, in other words, and not that of someone who is familiar with the global balance of payments.
6/9
He doesn't realize that what matters is not the currency in which Brazilian trade is denominated. It could be dollars, RMB, reais, euros or even Malaysian ringgits. What matters are the assets in which exporters want to to accumulate the proceeds of their exports.
He doesn't realize that what matters is not the currency in which Brazilian trade is denominated. It could be dollars, RMB, reais, euros or even Malaysian ringgits. What matters are the assets in which exporters want to to accumulate the proceeds of their exports.
7/9
For the world meaningfully to switch from dollars to RMB, exporters will have to want to hold their accumulated surpluses in RMB and, much more importantly, China will have to give up control of its monetary policy and abandon its surpluses for permanent deficits.
For the world meaningfully to switch from dollars to RMB, exporters will have to want to hold their accumulated surpluses in RMB and, much more importantly, China will have to give up control of its monetary policy and abandon its surpluses for permanent deficits.
8/9
It is extremely unlikely that Brazilians will accumulate RMB assets in exchange for its surpluses, and even if they did, it is almost impossible that China would accommodate them. To do so would force a very disruptive political and economic adjustment on China.
It is extremely unlikely that Brazilians will accumulate RMB assets in exchange for its surpluses, and even if they did, it is almost impossible that China would accommodate them. To do so would force a very disruptive political and economic adjustment on China.
9/9
I hope the US does eventually take steps to eliminate its accommodating role in global imbalances, and so reduces the global role of the dollar, and this is why I write so often about the need for "de-dollarization", but more people should understand what this would involve.
I hope the US does eventually take steps to eliminate its accommodating role in global imbalances, and so reduces the global role of the dollar, and this is why I write so often about the need for "de-dollarization", but more people should understand what this would involve.
Loading suggestions...