The Chinese state enterprise world times on Tuesday denounced the strength of the U.S. dollar as a “crisis” for the rest of the world because it increases the “financial risks facing emerging markets” and would make it more difficult for other countries to implement anti-inflationary policies. .
China therefore urged the world to move away from the US dollar as soon as possible.
Mixed with the World times’ The apocalyptic warnings about the tyranny of the dollar king were a good part of the grumbling that global bankers, including China’s state-controlled banks, still regard the US currency as a “safe haven for investors seeking safety in the in the midst of changing markets”.
The world times ignored China’s strained relations with India to use the Indian rupee as an example of foreign deflation techniques thwarted by the US Federal Reserve’s strengthening of the dollar to a 20-year high last week:
Indian policymakers have tried a series of measures to defend its currency, as a weaker rupee could bring more inflation into the country. India’s inflation hit 7.01% in June, down from 7.04% in May and 7.79% in April. But none of the measures seem to have worked to withstand the impact of a stronger dollar.
India is not the only country under pressure to depreciate its currency due to the Fed’s aggressive monetary policy, something the world is now watching. Former US Treasury Secretary John Connally said in 1971, “The dollar is our currency, but it’s your problem. What was true then remains true today. Currencies of various countries, especially emerging market economies, have been rocked by massive outflows of foreign capital in recent months, which could be extremely dangerous for the financial stability of any country.
#GTVoice: While the greenback is indeed a safe haven for investors seeking safety amid changing markets, it should be noted that an overly strong dollar exacerbates the financial risks facing emerging markets. https://t.co/xGJoKbhUtP pic.twitter.com/p1Gz7fdsfm
— Global Times (@globaltimesnews) July 19, 2022
The Chinese Communist newspaper reluctantly admitted that recent reports of large US debt holders such as China and Japan selling off their US holdings were a bit of a stretch, noting that China’s hoard of US securities has actually grown by more than $2.6 billion in May, just after headlines touted it. falling below $1 trillion for the first time in more than a decade.
The world times said it was particularly concerned about emerging economies, which could face short-term debt crises which it said would be exacerbated by the strength of the dollar.
“If the Fed’s hawkish policy continues to draw capital into the United States from other markets, those markets will suffer miserably from the financial turmoil. And the next Sri Lanka may be just around the corner. The world must remain vigilant,” the editorial concluded – an amusing and hypocritical comment given that easy Chinese loans were one of the main contributing factors to Sri Lanka’s economic collapse.
All the interest of Chinese propagandists lamenting the strength of the dollar could be an attempt to divert attention from China obvious role in the bankruptcy of Sri Lanka – a cautionary tale that should worry all customers of the Beijing Belt and Road Initiative (BRI). Sri Lanka is just the most egregious example and spectacular implosion of corrupt local elites eagerly grabbing China’s money to splurge on ridiculous programs and unprofitable projects, regardless of when these Chinese debts come due.
The Philippines have just suffered a hard lesson in BIS politics last week, when China suddenly scrapped three expensive and highly touted rail projects, leaving stunned Filipino taxpayers holding the bag for six years of debt racked up under former President Rodrigo Duterte.
One of Duterte’s top planners, Ernesto Pernia, sadly remarked Wednesday that “loans from China come with strings attached,” and China always gets something valuable in exchange for its apparent benevolence.
“Having been the economic team’s agnostic on the promises or apparent generosity of Chinese officials, I would not recommend reviewing/revisiting the three rail projects with the Chinese and abandoning them altogether. It is better to deal with ODA with Japan, South Korea, Australia, the United States and the EU,” Pernia remarked. ODA refers to official development assistance, the Philippine government’s infrastructure program.
The World times’ That strong dollars cause problems for poor countries has been argued by analysts less interested than the Chinese Communist Party.
Voice of America News (VOA) noted on Tuesday that strong dollars can divert investment from developing countries and Europe, where “uncertainty created by the war in Ukraine” is pushing nervous global investors to seek safer havens.
“We are a reliable currency. We’re not going to expropriate people’s bank accounts,” William Reinsch of the Center for Strategic and International Studies told VOA. The day after Reinsch made this observation, Beijing dispatched tanks to prevent anxious Chinese depositors from assault scandal-ridden banks to withdraw their money.
VOA noted that the strong dollar is a mixed bag for Americans, as it could provide a small short-term relief to President Joe Biden’s ruinous inflation by making imports a bit cheaper, but that benefit will be limited as currencies of Canada, Mexico, and China have not devalued much against the dollar, and these are America’s three main trading partners.
“It’s not good for American manufacturers or anyone who exports from here, because it makes their exports more expensive. This will add to the trade deficit, which is already huge,” Reinsch explained.
The Hill added Wednesday that Americans traveling abroad will benefit most immediately from a strong dollar – while those who stay at home will pay the price of struggling manufacturers, a floating stock market and jobs lost as imports become much cheaper than domestic products.
And, of course, if the world times and pessimistic optimists are right that strong dollars will hurt emerging economies and possibly even cause a humanitarian crisis, the United States will have to pay the lion’s share of foreign aid, as always.