in his challenging new book power of moneyformer Harvard economist Paul Sheard boldly stated that “government debt never needs to be repaid” as long as the debt is denominated in the issuer’s home currency and that currency is widely accepted. I’m here.
This is an attractive idea for BRICS group governments such as Brazil, Russia, India, China and South Africa. reduce reliance on the US dollar. The United States derives great strength from its expanding budget and ability to finance its external deficit.
This particular aspect of global power projections is not always taken into account when assessing why Asia and other emerging economies are. China With the currency gaining international standing, you can set up a great store. It’s not just a matter of prestige or convenience of trade or investment.
Governments fund not only health, welfare, education and other domestic expenditures, but also areas such as defense and military power projection, as well as international development expenditures such as infrastructure and various types of foreign aid. are doing business. According to Sheard, this can be done through debt, which never has to be repaid, but if it becomes more widely available, the world of economic, financial, and political and strategic power will become more powerful. It is a coveted privilege that can shift the social balance.
Just as Sheard rejects the idea that debt must always be repaid, she also rejects the idea that such debt is a burden to future generations. Many prominent international economists who have endorsed his book seem to agree.
He argues that while government debt is similar to corporate and household debt, it is fundamentally different. Bank reserves created by governments running budget deficits, like paper money, do not need to be repaid as long as the government can issue debt in its own currency.
Economist Paul Sheard speaks at the Boao Forum for Asia Annual Conference in Boao, Hainan Province, March 26, 2017.Photo: Xinhua News Agency
All governments can do this if the buyers of the debt are their citizens.But when debt is directed to foreign investors, as is the case with U.S. government debt, about a third of it held by a foreign government – Dollar dominance matters.
Now back to China and the other Brics members, whose numbers are expected to more than double. 5:00 to 11:00 Saudi Arabia, the United Arab Emirates and Iran will join in 2024, along with Argentina, Egypt and Ethiopia.
Bringing three major oil producers under its umbrella may look like a move by the group primarily to ensure future energy security, but it is also related to the evolving BRICS financial and economic strategy. .
BrixPlus member governments, as a group, will be in a position to issue bonds to friendly countries, including friendly countries. Abundant “oil money” A portion of it is used in bonds issued by the US Treasury Department.
From left, Brazilian President Luis Inacio Lula da Silva, President Xi Jinping, South African President Cyril Ramaphosa, Indian Prime Minister Narendra Modi, and Russian Foreign Minister Sergey Lavrov in Johannesburg, South Africa on August 24. attended the closing day of the BRICS Summit held inPhoto: Bloomberg
The wider the range of Brics member countries, the greater the potential market for member countries to issue government bonds that, at least in theory, do not need to be repaid.More than 40 countries reportedly expressed interest in participating Grouped, 22 of them have already applied for admission.
Brics countries stress acceleration Use of local currency Cross-border payments between each group via the Brics interbank cooperation mechanism, which facilitates cross-border payments in local currency between banks within the group, and Brics Pay, a digital payment platform in local currency Realize
None of these will create an overnight funding miracle for the Brics governments or any other. But the game will change as more countries realize they can play the game bilaterally to secure financing for seemingly endless budgets and current account deficits.
As I pointed out in a recent column, the United States has done nothing in recent years to improve the US dollar’s international image and deter other countries from seeking alternative currencies to the dollar. constant bickering in parliament Issues surrounding the federal debt ceiling. As Atlantic Council Fellow Hung Tran pointed out in a recent blog, dissatisfaction with the Fed’s monetary policy conduct is growing in other parts of the world, easing too long and then too long. It is seen as being too tight. .
More countries looking to develop alternatives cross-border payment mechanism To reduce reliance on the US dollar. If they can take advantage of these arrangements to expand the government bond market and gain a financial advantage, they will do even better.
A foreign currency dealer in Peshawar, Pakistan sorts US dollars at a currency exchange company on Aug. 15. A growing number of countries are looking to develop alternative cross-border payment mechanisms to reduce their reliance on the US dollar. Photo: EPA-EFE
China is behind this protracted battle to reduce US dominance in the international financial system while the US focuses on more blunt instruments such as tariffs and other trade restrictions such as a ban on technology exports to China. is a leading figure in
of Yuan has emerged as the most advanced in its use in cross-border bilateral payments. The renminbi has been used mainly in bilateral relations between China and other countries, but more recently India has paid for oil imports from Russia and Argentina has imported oil from Russia. It is also used for payments to third parties. settlement Part of borrowing from the International Monetary Fund.
The central banks of mainland China, Hong Kong, Thailand and the United Arab Emirates also collaborated on a project “mBridge” sponsored by the Bank for International Settlements to Multi-central bank digital currency A platform that promotes interoperability and connectivity. The world is recognizing the power of money and how to wield it.
Anthony Laurie is a veteran journalist specializing in economic and financial issues in Asia.
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