(本文翻譯自 陳冲 兵不血刃的貨幣戰爭 2022-08-03)
In mid-July, there was an understatement news: Australian iron ore supplier embraces Chinese market settled in RMB for the first time. It was not really a big news but as the Russia-Ukraine war continues and the IPEF and the AUKUS established, some people may sniff the ingenious interaction of geopolitics while some may recall the use of RMB as settlement currency for oil futures in 2018. Well, all implies the ever-present wrestling among currencies.
2009 was the year when cross-strait financial interaction turned good. I remembered that on Mar. 23rd, Zhou Xiaochuan, then Governor of the People's Bank of China, published an article titled "Reform the International Monetary System" on PBoC website, which surprisingly forced then President Obama to come forward and clarify. As we can see, the article obviously touched the raw nerve. While, there is something worthwhile to ruminate: the article didn’t mention US dollar, but US reacted violently. Neither did the article mention RMB, but every one knew that it was actually advocating the inclusion of RMB in the SDR basket. At the time, I interpreted that China aimed at the internationalization of RMB and it also long saw the benefits US enjoyed under dollar hegemony. However, Beijing knew that currency internationalization is not easy, and that the layout and preparation required rhythm and patience.
In November 2015, the International Monetary Fund (IMF) finally announced to include the RMB into the SDR basket, weighting 10.92 percent, making it the third strongest currency in the world. Immediately after President Trump took office in Jan. 2017, he launched a trade war and accused other countries of currency manipulation. Those who remembered the 1985 Plaza Accord, which strengthened the value of the Yen and thus caused Japan’s lost decades, all foresaw that there will be another battleground between the US dollar and the RMB.
Since the 2008 financial tsunami, the US has announced several rounds of Quantitative easing (QE). President Trump and President Biden printed even more money to boost the economy during the pandemic. The balance sheet of FRB hit $9 trillion from $2.2 trillion. The US has long emjoyed the privilege of printing money so that the enlarged balance sheet can still be within control. Bystanders are fascinated by the sparking radiance and wanted to be the next if possible. The status of the dollar level alone is a long cherished goal of many countries. A strong global reserve currency can be used for pricing, settlement and serves as a general currency. This year, after western countries cut Russia off SWIFT among the economic sanctions during the Russia-Ukraine war, Russia has instead required countries to pay for Russian gas in roubles. Every move hit home and the smoke of the currency war had gradually enveloped the world.
The Economist magazine likes to use What if as the opening of each paragraph when analyzing future trends at the end of year. What if cross-strait importers and exporters follow Russian-European gas/oil and China-Australia iron ore examples and propose to settle bilateral trades in RMB? It’s not talking nonsense but a reasonable speculation after the PBOC issued a notice recently (June 21st), supporting cross-border Renminbi settlement for foreign trades. Especially when Taiwan exports about 100 billion US dollars to China every year (about a quarter of total exports) and when the RMB is striving for the first place, this is actually possible.
So, how can Taiwan take it? According to past statements of central bank or trade bureaus, it’s believed that there would be exchange rate risk if RMB is used as the settlement currency. But what’s different if we use US dollar or Euro instead? Also, there’s cross-strait clearing system! (unless never simulated operating) As for whether we have sufficient RMB positions, according to statistics, household RMB deposits are no less than 220 billion. And according to the data released by the central bank in 2018, RMB accounted for 5% of foreign exchange reserves then and it’s estimated that there should be more than 200 billion now. The amount is sufficient and what’s missing might be the currency swap arrangement that I have advocated for long. If there is such a mechanism and once it’s used, it might not be a bad thing to have more SDR basket currency on hand.
Currency wars have been launched everywhere. Those in power, are you ready?
(Released on United Daily News, Aug. 3rd 2022)