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China’s digital yuan displaces the dollar
$16 trillion of US dollar deposits may disappear
By DAVID P. GOLDMANAPRIL 21, 2021
Either the Biden Administration or Bloomberg (or both) is confused. China has no intention of replacing the US dollar with its RMB within the framework of the existing world banking system, as People’s Bank of China Deputy Governor Li Bo said April 19. In fact, China has no incentive to this, and could not do so even it wanted to.
The $16 trillion of offshore dollar deposits at international banks won’t turn into the equivalent amount of Chinese yuan. Instead, that $16 trillion will shrink to a small fraction of its present volume, because the Big Tech/fintech revolution will make them redundant. Instead, as Morgan Stanley analysts explained this week, “banks will lose their deposit base” as digital currencies replace their most basic functions.
What Western analysts fail to grasp is that China is not trying to take the place of the United States. Rather, China is creating a new system of world trade and finance that will – as a byproduct – replace the methods of trade financing that have remained in place since the Venetian Republic introduced them in the 13th century.
The Morgan Stanley team argues that the digital yuan won’t threaten the reserve status of the dollar, which technically is correct but misses the point: The digital system will hollow out the deposit base of the banking system, most emphatically for international trade financing. Reserve currencies won’t disappear, but they will become vestigial. Chetan Ahya’s report focuses on the domestic implications of digital currencies, which may be extensive, rather than the global implications, which will be tectonic.
The United States will lose what economists call seigniorage, a term that derives from the difference between the value of gold or silver coins and the their bullion content. This amounts to about $25 trillion by my rough estimate (the $16 trillion in overseas dollar deposits plus the $8 trillion in US Treasuries owned by foreigners).
The US will lose this enormous volume of cheap credit from the rest of the world just when it needs it the most.
asiatimes.com
$16 trillion of US dollar deposits may disappear
By DAVID P. GOLDMANAPRIL 21, 2021
Either the Biden Administration or Bloomberg (or both) is confused. China has no intention of replacing the US dollar with its RMB within the framework of the existing world banking system, as People’s Bank of China Deputy Governor Li Bo said April 19. In fact, China has no incentive to this, and could not do so even it wanted to.
The $16 trillion of offshore dollar deposits at international banks won’t turn into the equivalent amount of Chinese yuan. Instead, that $16 trillion will shrink to a small fraction of its present volume, because the Big Tech/fintech revolution will make them redundant. Instead, as Morgan Stanley analysts explained this week, “banks will lose their deposit base” as digital currencies replace their most basic functions.
What Western analysts fail to grasp is that China is not trying to take the place of the United States. Rather, China is creating a new system of world trade and finance that will – as a byproduct – replace the methods of trade financing that have remained in place since the Venetian Republic introduced them in the 13th century.
The Morgan Stanley team argues that the digital yuan won’t threaten the reserve status of the dollar, which technically is correct but misses the point: The digital system will hollow out the deposit base of the banking system, most emphatically for international trade financing. Reserve currencies won’t disappear, but they will become vestigial. Chetan Ahya’s report focuses on the domestic implications of digital currencies, which may be extensive, rather than the global implications, which will be tectonic.
The United States will lose what economists call seigniorage, a term that derives from the difference between the value of gold or silver coins and the their bullion content. This amounts to about $25 trillion by my rough estimate (the $16 trillion in overseas dollar deposits plus the $8 trillion in US Treasuries owned by foreigners).
The US will lose this enormous volume of cheap credit from the rest of the world just when it needs it the most.
China’s digital yuan displaces the dollar - Asia Times
In his annual letter to JP Morgan shareholders, bank chairman Jaime Dimon offered a startling admission: Banks already compete against a large and
asiatimes.com
