Curious if there is an alternative model being experimented. Instead of one hub currency as world trade / reserve like USD why can not there be a basket and more peer2peer bypassing SWIFT and US correspondent banks
See the mBRIDGE project by BIS for Central bank 2 central bank settlement Watch project mBridge BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China and the Hong Kong Monetary Authority with new addition The Saudi Central Bank
Also Fast Payment Systems (FPS) in domestic markets like UPI (India) and PayNow ( Singapore) are morphing to cross-border payments bypassing SWIFT and US correspondent banks .
It is estimated that almost 25% of trade settlements are now outside USD/SWIFT
People have been complaining about the dollar’s hegemony for decades, but like the weather, nobody does anything about it. There are a couple obstacles that would need to be overcome, and the obstacles are pretty big. Any global currency needs to be available in enormous quantities, on the order of trillions of dollars. That eliminates most currencies right there. China is big enough but they have very tight currency controls. They have been trying to do some trading in renminbi, but it isn’t very much so far. Eurozone is big enough, but the Euro really hasn’t taken off as a dollar alternative.
Then there is the power of the incumbency. Everyone uses the dollar, because everyone already uses the dollar.
We talked about MBridge in another thread. It is a platform to trade central bank digital currencies (CBDC) between central banks. No major central bank has a CBDC. They are thinking about it, but they aren’t there yet. And central banks already trade currencies with each other. This is more a make it easier kind of thing, rather than any type of meaningful change to the existing system.
Thanks. Have not seen the different MBridge thread. I have seen discussions that about 20% of trade is bypassing SWIFT and US correspondent banks. Yellen has claimed that there is no option apart from USD and sanctions make no difference.
May be a overconfident hubris!!
Mbridge permits bypassing Herstatt risk and avoid the continuous settlement under FED/ EU oversight and US banks. This does help bypassing USD.
The major issue is how the exporter parks trade surplus. In past they went to US treasuries but now the migration is to holding other assets including hard assets. The BRI of China has permitted it to hold roughly 3 -8 trillion of ports, railways in many other parts of the world and reduce US Treasuries substantially.
The investments into India by Qatar, UAE etc are part of similar approach where a small portion of surplus are kept in less liquid and more volatile assets outside USA.
And Shanghai Gold exchange is an established competitor to London Exchange.
You are assuming a single Hub ( Reserve currency) for all transactions. It may be multi hub. A CNY zone, and INR Zone, a Bitcoin Zone . Just like all airlines do not use the same hub . They have different hubs around the world.
I expect USD to fall below 50% of world trade and surplus. Buyers of US treasuries will concentrate to be western nations and banks and Pension funds. This will increase yield that the Fed may need to pay
This will take 20 years to play out. Harness your seat belts
It is the same thing not an alternative. There is more to a currency than the number of bills. There is the industrial complex, scale or strength of the asset base, and the cultural or political dynamics.
The political dynamics are the problem. This has nothing to do with discussing any particular politics. The democracies are far better off in every aspect. The democracies are stable. That is not matched anywhere else.
No such assumption at all. I gave you an example up above: the Euro. As I mentioned above, there is plenty of motivation to move away from the dollar, but the practical implications are difficult to overcome. For example, about half of global currencies are pegged or anchored to the dollar. That makes it easier for those countries to trade among themselves, but it also ties them to a dollar based system.
Let’s look at say, the INR as a candidate for a regional currency. It isn’t easily convertible to other currencies, financial markets are hard to access, India doesn’t do much global trade, domestic economic policies are iffy, and so on.
All those things could change of course, but until they change the INR isn’t a good candidate for a regional currency. You can go on down the list, any reserve currency candidate has some serious deficiencies compared to the dollar that need to be remedied.
Another possibility is creating a new currency, like the Euro, but that means each member country would have to give up some economic autonomy, and that’s a heavy lift.
None of this stuff is impossible, but it is all really difficult.
But there is no need for 1 currency as a store of value for the world.
India for example does not have to become a excess supplier of INR merrily because there is excess demand to store surplus of exporters all around the world.
A small amount of excess provisions based on the trade zone and major partners may be enough. Same for China.
A new way to store exporters surplus abroad and use it will be invented just as joint stock companies and now tokenization.
SDR from IMF may have been a opportunity. Euro has failed and failed spectacularly . USA is anyway moving towards implicit capital controls after freezing Afghanistan and Russian reserves and using national security to pressure its VC from moving out of China. Such behavior forces a recalculation of cost benefit of keeping too much reserves in a country which has unpredictable moods and hostile acts without actually declaring war
Primarily USA is making its currency less dependable and