Economists see a politicized central bank damaging confidence in the U.S. system while Beijing advances in globalizing yuan.
SINGAPORE—One potential beneficiary of the tug of war over the Federal Reserve’s independence: China.
The criminal investigation into Fed Chair Jerome Powell is being viewed globally as an effort by the Trump administration to wrest control of monetary policy from the central bank. That, according to some economists, risks damaging investor confidence in the U.S. financial system and the dollar, just as China is expanding use of its own currency around the world.
“The institutional setup of the U.S.—through actions like those against the Fed—is being undermined,” said Bert Hofman, a former World Bank country director for China now teaching at National University of Singapore. “Holding dollars becomes a relatively less attractive proposition as a form of safety.”
China’s push to globalize its own currency—recently given renewed importance by Beijing in a five-year policy plan—has already alarmed officials in Washington.
Before entering office, President Trump warned about China’s push to globalize the yuan and has since threatened tariffs on the Brics bloc of emerging-market countries—which includes China—should they create an alternative to the dollar. Wider use of the yuan could also allow adversaries to avoid the scrutiny of the dollar-based financial system.
“If we lost the world standard dollar, that would be like losing a war,” Trump said in a cabinet meeting in July.
Since it became the world’s dominant currency in the post-World War II era, the dollar has weathered many crises before, in part because there is no obvious replacement.
China’s strict controls over capital and exchange rates make it unlikely that the yuan could fill all the roles the dollar plays now, and even Beijing’s leaders don’t say they want that. More widespread use of the yuan could push up demand and the value of the currency versus the dollar, eroding China’s competitive advantage and hurting its exporters.
Instead, with gradual steps, Beijing is competing with the U.S. for global influence by chipping away at the dollar’s ubiquity in certain areas such as bank payments.
Federal Reserve Chair Jerome Powell pushes a glass door.
The probe into Fed Chair Jerome Powell risks damaging investor confidence in the dollar.
The dollar reigns in part because countries and companies consider the U.S. political system stable and appreciate having reliable places to park their extra dollars, especially U.S. Treasurys.
Political control of central banks in countries such as Turkey has led to high inflation, which, if repeated in the U.S., would undermine the role of U.S. government debt and reduce confidence in the dollar.
WSJ.
'“The Americans are waking up to the reality,” said Chi Lo, a market strategist for BNP Paribas Asset Management in Hong Kong. The yuan is “now becoming a force that they cannot ignore,” he said.'
Silence from @Cje95 our taxpayer funded US imperialist apologist.
'A loss of Fed autonomy could spook investors further. “It would sow the seeds, effectively, of the demise of dollar dominance,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank in Sydney.'
'Roughly half of China’s cross-border transactions are now denominated in its own currency, compared with almost nothing 15 years ago, according to official data.'