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Dollarization is agitated in Argentina while the world talks about de-dollarization

2023-05-02T20:39:13.511Z


Dollarization was introduced into the electoral agenda but in the world the discussion revolves around the displacement of the dollar as a reserve and international exchange currency. The pressure from China and the cases of India and Brazil.


De-dollarization, will it be true or Chinese tale?

The truth is that in the current global geopolitical and geo-economic panorama, there is a

clear battle to displace the US dollar

from its preeminence as a reserve currency and international exchanges.

The fact that one means of payment is replaced by another

is not new

throughout history, it has been happening since antiquity to the present.

Around the year 9000 BC, when it is believed that humans began to exchange goods and services, only barter was used.

Later, various objects and products served as a means of exchange and as a unit of value in transactions: salt in ancient Rome and in Africa;

cattle in pastoral societies;

seashells in coastal areas;

precious stones like jade and amber;

and then precious metals.

The alloy made it possible to mint the first gold and silver coins, to standardize them in weight and purity, and to give them a recognizable design.

With the coins, a revolutionary step was taken for the economy and commerce and they governed for centuries as a means of payment, later being replaced by the

paper money that was created by China

and that over time the banks began to print without any support.

Each country was developing its own currencies.

In the last six centuries, the currency of Portugal, which governed between 1450 and 1530, has gone from hegemony to disappearance, replaced by that of Spain a hundred years later and successively by that of the Netherlands, France and Great Britain, which It remained on the podium until

1920, when it transferred the leadership to the US currency.

Subsequently there is a fundamental change in the international financial and monetary system.

The

Second World War consolidated the economic and military power of the dollar, installed around 1946

in a hegemonic position as the main reserve currency and use in financial transactions and world trade.

In July 1944, the Bretton Woods agreement between 44 countries took place, which established a fixed exchange rate of 35 dollars an ounce of gold, while the other countries agreed not to allow their currencies to fluctuate in a range greater than one

. percent.

The aforementioned agreement meant a

strong boost to the dollar

since it facilitated the formation of a network and made its use more practical and efficient while giving it a synergy that allowed it to consolidate itself as a common currency in cross-border transactions, and due to the convertibility , in reserve currency.

Less than thirty years later, the US began to experience an inflationary process, not having enough gold reserves to back it up, and being forced to finance its trade and budget deficit by issuing more dollars, for which reason it "temporarily" suspended

convertibility , which is formalized through the Kingston Agreement, Jamaica in 1973.

The space generated by the displacement of convertibility was occupied by the

floating exchange rate system

, with which fiduciary currency (“fiat money”) is returned.

In 2009, Bitcoin appeared, the first decentralized digital cryptocurrency, not backed by any government or central entity, which does not have support and which even the central

banks of different States try to imitate.

In the sequence of the evolution of the means of payment, each replacement of a system has implied a transcendental step for world economic history and for humanity.

Reasons for a challenge

Many countries have expressed that they find no justification that international payments must necessarily be made in US dollars, although this is not equivalent to the desire to replace said currency with the euro, the pound or the yen.

It is not a question of substituting one monetary vassalage for another,

but rather

reducing excessive dependence on the dollar

due to its volatility and/or diversifying its international reserves.

The objective is mainly focused on

using their own currencies in bilateral exchanges

, or on developing a single currency that could serve an alliance of countries.

In any case, it is a disruptive idea of ​​the current monetary system.

Isolated countries and alliances participate in the idea.

Among the first are, among others,

India, the most populous country on earth and which does not hide the ambition that the rupee

be used for international trade operations;

Türkiye;

and Russia, Iran and Venezuela.

These last three were actually forced to become independent from the dollar due to US economic sanctions.

Various alliances include the Association of Southeast Asian Nations (ASEAN) made up of the Philippines, Indonesia, Malaysia, Singapore and Thailand, Brunei Darussalam, Cambodia, Laos, Myanmar, and Vietnam;

and BRICS made up of Brazil, Russia, India, China and South Africa, with 40% of the world's population and a substantial part of the GDP, to which more than twenty countries apply to join.

Although the dollar is indisputably established as the preferred reserve currency and generalized use in financial transactions and world trade, it is 

threatened and forced to assume a defensive position of its hegemony.

fight for supremacy

China openly fights

to impose the use of its currency,

the yuan or renminbi (“the currency of the people”) in international commercial transactions, and it has self-imposed to prevent the reign of the dollar from being extended.

Not only does it seek to strengthen its power, but it is also attracted by the prize of the large economic and financial benefits that its currency becomes the replacement currency.



The country works actively, but in a gradual and carefully planned manner, as is typical of its economic system, to increase the acceptance of the yuan and increase its influence in the global economy.

To this end, it has fostered

bilateral exchange agreements, granted international loans,

promoted investment by issuing bonds and other financial instruments, developed payment clearing and settlement systems, and agreements to create free trade zones.

The Silk Road and the countries it crosses (Wikipedia).

In addition, as it had been announced a decade ago, it boosted the ancient silk route ("One Belt, One Road") used from the 2nd century BC to the 15th century for trade with Asia, Europe and Africa.

Currently, giant businesses and infrastructures, ports, roads, railways, energy networks, etc. already circulate through it.

and focuses its efforts and seduction to join the "New Route" in the countries that produce raw materials of interest.

The differences between both currencies, both for reserves and for international payments, can be found in

the respective percentages of global acceptance.

Regarding the acceptance of the dollar as a reserve currency, although there is no uniformity in consultation sources, it can be estimated on average that it is between 55 and

60%, followed by the euro (20%), the Japanese yen (5% ) and the pound sterling.

The yuan would barely reach 2.7%.

As a currency for international payments, the relative participation of the yuan is also very distant from that of the dollar, despite having increased from 2% to 4.5%, approaching the level of the euro.

China has found resources and support to make up for such participation deficits.

For the time being, it has

paid for an import of oil and natural gas to Saudi Arabia with yuans,

although the country, an undisputed productive power, had already decided to receive payments in various currencies.

More important was having achieved the same form of payment with the GCC, the Gulf Cooperation Council, which is the largest exporter in the world (made up of Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates, and Saudi Arabia).

The global importance of such negotiations in such a vital industry makes it possible to sustain a change in the monetary paradigm:

from the petrodollar to the petroyuan.

Chinese President Xi Jinping with Brazilian President Luiz Inácio Lula da Silva in Beijing.

In addition, Brazil, through the recent visit of its president to the eastern country, and repeating a position committed years before, has just offered a new testimony of faith to the delight of its host, in the sense that in the future operations in Bilateral

trade

would be settled using their respective currencies

.

A few days later he made it a reality with a first bilateral operation.

Another important contribution that increases the participation of the yuan as a currency of exchange are the multiple commercial transactions with Russia, for which negotiating with yuans is more convenient, necessary, since it is isolated from SWIFT and has financial assets embargoed for about three hundred billion of dollars.

This, in addition to other sanctions and restrictions since its invasion of Ukraine on February 24, 2022, which, although of doubtful general effectiveness, frighten countries that have the dollar as a reserve, since they would be blocked if they were considered enemies or friends. of enemies in the opinion of the authorities of the issuing country.

As a result, any contribution to a greater trading volume with its currency and that contributes to raising the level in the measurement of its global participation, favors China, while, simultaneously, subtracts them from the dollar both quantitatively and percentage-wise.

A paradoxical fact that has contributed to favoring the increase in the yuan's share is the

increase in interest rates ordered by the US Federal Reserve

, even more so when the People's Bank of China cuts the preferential lending rate.

Neither the notorious differences between the potential of each currency, nor the lack of depth and liquidity of its financial system, nor the lack of full convertibility and transparency of its economic policy, nor the criticism of its political system and the lack of freedom and respect for human rights,

nothing, absolutely, immutes the eastern country or weakens its ambition

and the consequent actions of the Asian power.

What it means to lose control of money

Argentina has also abandoned the US dollar in trade with China, a country that has allowed it to strengthen its scarce

international

reserves with yuan .

For this reason, it will buy most of its imports from that country with yuan instead of its few dollars, which it has to carefully guard.

But on the other hand, and while the dollar is devaluing in the world against other currencies, the country is in the middle of a

debate on whether or not dollarization is a solution to the devaluation of its currency.

De-dollarization is, as has been seen, the process of gradual decrease in the use of the dollar as a reserve currency and for international payments in the world, and is driven, among other reasons, by the loss of confidence in said currency, the high

debt of the United States, the decline in its participation in international trade, and the rise of other economies,

such as China.

It is postulated as a solution to high inflation and consequent lack of confidence in the peso, adopting the dollar as the official currency, displacing its own.

It is dispensed with considering that it implies a

loss of monetary control

and a corset that limits the ability to implement monetary and fiscal policies with autonomy.

Therefore, it is a short-term solution and against the international trend.

The dilemma of reestablishing a fixed convertibility with the dollar does not keep the memory of the experience lived in the country in the 1990s, which led to socioeconomic consequences

whose repetition is not desirable.

Both possibilities are paradoxical and short-lived, precisely when an opposite vision is needed.

De-dollarization is a fact that is ongoing and growing.

An imminent outcome is not foreseeable

or that it will culminate in the replacement of the current reserve currency and international payments, since in these aspects, as has been seen, changes occur gradually and not immediately.

It cannot be ruled out, however, that some significant or unpredictable geopolitical event may accelerate the process or influence its future.

Among the different alternatives, the yuan or renminbi is the currency with the greatest possibilities of climbing positions and occupying the privileged place it aspires to, but nothing guarantees that it will be able to definitively dethrone the dollar.

The largest international operators, the Central Banks, do not bet on one or the other currency, but

buy gold, a safe haven asset for times of uncertainty.

In a single year, the last one, they bought more gold than in the last 55.

China, the undisputed largest producer in the world, has been one of the biggest buyers along with India, Russia, Turkey, Iran and many more, due to economic and geopolitical uncertainty, and interest in reducing exposure to single currency risk. and diversify reserves.

A return all'antico to find support?

True things, Sancho!

The ingenious Manchego hidalgo warned the squire of him.

Source: clarin

All business articles on 2023-05-02

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