Deutsche Bank analyst warns US dollar may be dethroned as primary world reserve currency, possibly replaced by RMB
In the following you will find our translation of an article from rueconomics.ru with this foreword and intra-textual notes [in brackets] by Vince Dhimos. Many of the articles we publish in translation from RIA Novosti and rueconomics.ru are analyses by Russian experts of opinions and reports from the Western press, particularly financial journals. This one relates to a stunning statement by an analyst of Deutsche Bank that a second wave of the COVID pandemic could dethrone the US dollar as the primary world reserve currency and see it possibly replaced by the RMB. Needless to say this would be the most resounding possible slap in the face to all the US politicians who badmouthed China and did their darnedest to maintain the power and prestige of the US economy by simply undermining China. The fact that China is the only country that, amidst the COVID crisis, has actually shown some economic growth in contrast to the severe erosion of the US GDP foreshadows this possibility – the untimely death of MAGA and a nightmare for the US politicians on both sides of the aisle who wish China ill based on their zero-sum pseudo-religion.
The author is referring to the Business Insider article linked here:
Of course, in world affairs, nothing is predictable. For instance, if a cure or vaccine were found soon enough, the Fed may not feel obliged to “print” more trillions. However, there is no hint at this point that such is in the cards.
Vasiliev predicted what currency will replace the dollar after its collapse
June 26, 2020
The weakening of the dollar as a world reserve currency will change the direction of the global economy, the chief researcher at the Institute of the USA and Canada, Doctor of Economics Vladimir Vasiliev, told FBA Ekonomika Segodnya.
Sameer Goel, Deutsche Bank’s chief macro strategist for the Asian market, warned in a CNBC interview that investors would reject the dollar if a second wave of the coronavirus pandemic begins. According to him, the exit strategy for the United States looks poorer than that of other countries.
Sameer Goel made this statement after a sharp spike in new cases of the disease was recorded in the United States at the end of last week. So, on June 19 and 20, 2020, according to Johns Hopkins University, more than 30,000 [new] cases were detected, which was a record and shocking daily increase since May 1, 2020. On Sunday, June 21, 27,476 new cases of COVID-19 infection were reported in America.
“The alarm forecast of Deutsche Bank should not be understood as a prediction of the collapse of the US national currency, but as a foreshadowing of its dethroning as a global reserve currency. A weakening of the dollar is being observed – at least in relation to the renminbi. In the case of the euro, parity is possible, since European countries that are part of the Eurozone are pumping in at least as much money, and therefore the euro does not have much circulation outside the specified area.
In this regard, the alleged collapse of the dollar is a signal to the Federal Reserve System, which got carried away with pumping dollars into both the American and the global economy,” says the expert.
A new reality for the global economy
Vladimir Vasiliev notes that today the US Federal Reserve has lost its autonomy and is dependent on the intentions of the current American president.
“The features of the Fed’s foreign policy demonstrate a reaction to signals from the White House, which is playing all-in. Donald Trump is ready to pump the world full of dollars, since it is important for him that by the fall of 2020, when the US presidential election is due, the country's economy will be afloat.
Therefore, if the Fed continues to follow instructions from the White House to pump the world economy full of dollars, the collapse of the American currency will become an inevitable event. At the same time, the scale of the current crisis will not allow the dollar to quickly regain its position. It is important to understand that it can collapse and rise from the ruins,” the source said.
When the coronavirus began to spread actively around the world, investors preferred the American dollar to currencies from the G10 countries: Great Britain, France, Germany, Italy, Japan, Belgium, the Netherlands, Sweden, Canada, the USA and Switzerland. The Deutsche Bank strategist also clarified that investors usually “flock to the US dollar” in times of uncertainty due to its relatively good position as a global reserve currency. But now the situation is noticeably changing and not in a favourable direction for the American currency, so the strategy and speed of the United States of America coming out of self-isolation look worse than in other countries.
“The packages of measures that the US has taken via the federal budget account for about 15% of GDP. In addition to this, the Federal Reserve is churning out large amounts of money. Obviously, these funds also go to the stock markets. [But, of course, no distinction is made here between stocks of badly managed companies – which should be allowed to fail – and well-managed ones. This indiscriminate distribution of unsecured loans to all major companies keeps bad companies afloat at the expense of the US economy as a whole]
Therefore, from the standpoint of simple exchange rates, it becomes quite obvious that the dollar’s position in the world economic system will weaken in the near future, that is, for the summer-autumn period of 2020. In other words, the injection of funds from the Federal Reserve System is leading to a devaluation of the American currency, which can only have a weak foreign-economic value for the United States [ie, value in relation to foreign currencies],” the economist comments.
The saturation of the global economy with dollars leads to strong market volatility, which is becoming difficult to predict. This volatility, in turn, is easily capable of provoking a panic that could weaken the already fragile position of the American currency.
“The coronavirus pandemic is sending the world economy into uncharted waters, followed by a deep dip in the dollar. One of the important issues in this case will be the regulation of the international currency market, the impact of which the International Monetary Fund is experiencing today.
The weakening of the US currency as a factor in stabilizing the global monetary system can actually lead to other currencies playing its role,” the economist believes.
Reorientation of the post-crisis world
According to the leading macro strategist of Deutsche Bank, foreign exchange markets have recently been confronted with “multiple cross-currents” amid concerns about a second wave of coronavirus cases threatening the world. Investors looking to the American currency are asking a "big question" about whether they should buy the dollar at a premium for its alleged security against a backdrop of fears. Samir Goel suggested that if a second wave of coronavirus occurs, the United States dollar may weaken against most currencies in developed countries, including China.
As China gradually opens up its financial markets, while introducing more assets denominated in local currency,” the portfolio flow history is gradually becoming positive for the renminbi.”
“The yuan will continue to strengthen its position and will be seen by investors as a new international reserve currency. This will provide tremendous economic and political benefits to China. Moreover, in terms not only of its impact on the regional economy, but also of the international regulation of global financial flows. This is precisely what analysts in the United States of America fear.
The Chinese side is supporting its economy to a much lesser extent than the United States of America. This is due to the fact that the PRC economy is not experiencing so many major crisis shocks and is demonstrating certain growth rates,” said Vasiliev.
China foresaw such a scenario. As soon as the American side began to impose its conditions on Beijing for the upcoming trade deal, and after the partially concluded trade deal, while threatening sanctions and tariff increases, the Chinese government decided to pursue a wise policy regarding Washington’s actions, and in June 2020 Fan Xinghai, vice chairman of the Securities Control Committee of China, said China needs to prepare for a projected disconnect from the global dollar settlement system based on the interbank information transfer and payment system SWIFT and interbank electronic clearing settlement system CHIPS, in the event America imposes sanctions. [In other words, in the event the US tries to cut China off from these systems. Of course, the more the US weaponises the dollar and institutions dependent on it, the more foreign countries are pushed into distancing themselves from dollar-based transactions and thereby weakening the USD. US policy makers have lost all sense of the principle that every action is accompanied by an equal and opposite reaction]
By the way, strengthening the position of the Chinese yuan, Vladimir Vasiliev believes, will ultimately lead to a reorientation of many leading countries, including the Russian Federation. In April 2020, according to the data of the US Ministry of Finance, Russia increased its investments in US government securities by almost 80%, ie, to $ 6.85 billion – it had previously chosen to reduce these investments.
“In America, there is an obvious decline in GDP, and analysts cannot accurately predict the timing of the recovery of the United States economy. It is possible that it will begin no earlier than 2021. At this time, China will gradually come to maintain growth both in 2020 and in subsequent years.
It is at this time that a tectonic shift towards the renminbi would begin, which would determine a new direction for the development of the world economy. If this happens, then China will have an additional opportunity to accelerate the growth of its own economy and reorient many economic players. China has recently attracted the attention of the Russian Federation and has reduced the impact of the United States on itself in the framework of the trade war,” the expert said. [Economists acknowledge that it was China that restored the world economy after the 2008-9 Great Recession. There is no other economy that can stabilize the world economy after the pandemic crisis. And yet, US policy makers are intent on destroying it!]
Author: Alexandra Melnik
Vince Dhimos on Quora writing on this topic:
Gaddafi’s cousin warns Erdogan: ‘We are able to reach Istanbul’
By News Desk -2020-06-260
BEIRUT, LEBANON (8:00 P.M.) – The political official of the Libyan National Struggle Front and cousin of the former Libyan President, Ahmed Gaddaf Al-Dam, said on Thursday that Egypt has the right to defend itself, pointing out that many of the bombings that took place inside the country came from Libya.
In an interview with Sky News Arabia, Qaddaf Al-Dam stressed that the efforts of Turkish President Recep Tayyip Erdogan to interfere in Libya will fail.”
“Egypt is subject to an organized war as an Arab country, and it has the right to defend itself when its red lines are crossed. As for us, our red lines are in Zuwara and Tobruk, and if the Turks extend to Libya, we are able to reach Istanbul, especially as we have allies in Turkey.”
Qaddaf Al-Dam considered that “Turkey was dragged into a trap in Libya,” saying: “Stupid policies that Erdogan signed, who thought he would be the caliph and that the Ottoman Empire would return through the gang that turned around Qatar, without realizing that they were carrying out a plan to destroy the Islamic world.”
He also considered that Ankara “is implementing a plan drawn up by the West,” saying: “The brothers in Turkey lost their minds and were lured to be drained financially, morally and militarily, and created internal problems there. I pity Turkey because Libya will return, as we have the will and strength, and we are a country that returns and recovers.”
“Our armed forces are returning and will join forces with each other in the east, west and south. They will not be able to resist our tribes, and there is no legitimacy in Libya except the legitimacy of the Libyan people.”
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He added: “The West will not allow Turkey to exist militarily in the Mediterranean Sea, or to obtain Libya’s wealth, but Erdogan’s recklessness and encouragement of those around him made him believe that they would be victorious, but he might slip into this bump.”