Lectures: 116
Criticism of the hegemony of the dollar in the international financial system is getting worse and is directed against the financial organizations that have naturalized this predominance: the World Bank (WB) and, particularly, the International Monetary Fund (IMF), both entrenched in the economic design global for eight decades and about which alternatives are also beginning to open up.
The dissidence is barely vocal, but one of its main vehicles is the renminbi, a currency that has been in the race to be internationalized for several years, without advances close to those of the economy that supports it. Last week, during a press conference in the framework of the spring meetings of both organizations, the director of Monetary Affairs and Financial Markets of the IMF was consulted if the increasing use of the Chinese currency promotes financial stability.
Tobias Adrian was silent and hesitated at first; then he explained that at the moment the renminbi has limited convertibility; It is expected that this will expand and eventually the Asian currency can be used more frequently in payments such as in the capital market. It is in the latter where there may be a risk to financial stability if the advance of the currency is not accompanied by regulation and supervision of financial institutions, he added.
“Of course, the Chinese authorities are committed to international standards for banking supervision and capital markets. I think that can really lay the foundation for deep and liquid capital markets around the renminbi, which address financial stability risks appropriately; so, to the extent that institutions are well regulated and well governed, financial stability risks must be contained,” added the IMF official.
The dollar dominates in nine out of 10 transactions carried out worldwide, 88.45 percent; while the renminbi is at 7.01 percent, according to the Bank for International Settlements. However, the Chinese currency still has a limited weight in official foreign exchange reserves, it reached 2.5 percent at the end of last year, while the US one covered 54.1 percent, according to IMF data.
One of the most recent criticisms of the hegemony of the US currency came from French President Emmanuel Macron, returning from an official visit to China. “Why should we go at the pace chosen by others? At some point we must ask ourselves what our own interests are, ”he asked; to then express that Europe must get rid of the “extrateritoriality” of the dollar.
Another one came from the Brazilian president, Luiz Inácio Lula da Silva, in the framework of the inauguration of Dilma Rouseff as president of the New Development Bank, in Shanghai. “Why are all countries obliged to do their trade tied to the dollar, (…) who decided that it would be the global currency?”, questioned the president.
Although China and Brazil – respectively, the second and thirteenth largest economies in the world – agreed that their commercial exchange from now on will be in their own currencies, to avoid the intermediation of the dollar; Lula da Silva is also the creator of a project for Latin America to have a common currency: the “south”, about which talks have already begun with Argentina.
“For a currency to be usable, both in trade and finance, there must be a lot of institutional underpinnings behind it,” such as a strong financial market and availability of funds, reacted Nigel Chalk, deputy director of the IMF’s Western Hemisphere department. , when questioned about Lula’s statements. He considered that the hegemony of the dollar is not part of a “grand plan”, but something determined by the market.
The dissent to the financial architecture standardized by the IMF and the World Bank, and the centrality of the dollar in it, was formed in 2015 by Brazil, Russia, India, China and South Africa with the objective of having a multilateral organization destined to mobilize resources for projects of infrastructure and sustainable development in their countries and other middle-income economies. In almost nine years, the New Development Bank was joined by Bangladesh, the United Arab Emirates and Egypt.
By Dora Villanueva
