Comment by Riaz Haq on December 24, 2022 at 4:52pm

Russia’s invasion & Pakistan’s floods defined 2022 in climate

https://www.climatechangenews.com/2022/12/21/russias-invasion-pakis...


After an avalanche of climate pledges last year, 2022 was when governments and corporations started to grapple with implementation


In 2021, governments and corporations got drunk on net zero hype. 2022 was the year when the hangover kicked in and they started to grapple with what their promises meant and whether they were actually prepared to follow through.

Cop26’s slogan of “coal, car, cash and trees” was replaced by Cop27’s sober “together for implementation”. Russia’s invasion of Ukraine sent fossil fuel prices soaring and governments scrambling to secure them in the short term while moving off them in the long term. Many pledges made in Glasgow slipped off the top of governments and CEO to-do lists.

But the changing climate kept making the case for action. With large parts of Pakistan underwater and its people living for months by the side of the road, the case for loss and damage finance for climate victims finally became impossible to ignore. Here’s our run-down of what defined 2022 in the climate world.

Russia’s invasion of Ukraine
On Thursday February 25, Russian troops advanced towards Ukraine’s capital Kyiv. The invasion had huge global implications, particularly for energy. But its immediate impacts were local and personal. The day after the advance on Kyiv began, Climate Home spoke to a climate campaigner stuck in a huge traffic jam as she fled the city, a climate scientist who had to debate the IPCC’s summary for policymakers under rocket fire and a green energy promoter who feared that investment in Ukraine would now disappear.

The war highlighted how dependence on fossil fuels makes you vulnerable. Europe had to scramble to replace Russian gas with renewables and non-Russian gas. The latter sent energy prices around the world soaring and damaged the continent’s credibility as a self-styled climate leader. For the rest of the year, Europe tried not to pull a muscle pursuing a dash for gas at the same time as a renewables marathon. European divisions on whether to back foreign gas were laid bare at the G7 in June.

In September, two pipelines carrying Russian gas exploded in suspicious circumstances. Experts said this highlighted the inherent vulnerability of an energy system which relies on moving large quantities of stuff across the world rather than relying on the sun and wind, which are harder to disrupt.

Fossil fuel crisis
The economic impact of the invasion of Ukraine spread far beyond Europe. Countries like Sri Lanka, which has neglected renewables and relies on imported fossil fuels, were particularly vulnerable to the spike in the oil and gas price.

About month after Russian troops marched towards Kyiv, protesters in Colombo advanced on the presidential palace of Gotobaya Rajapaksa. A few months later, on 9 July, he fled to Singapore, although his disciple Ranil Wickremesinghe remains in charge.

Analysts told Climate Home that reliance on fossil fuel imports had contributed to the crisis. But that neither the government nor ordinary citizens have the money to invest in renewables and fix the problem. So Sri Lankans face power cuts, tourists stay away and the country struggles even more for foreign currency.

Loss and damage breakthrough
This year saw huge advances on the issue of loss and damage, which is UN climatespeak for funding for victims of climate change. Developing countries have been pushing for a loss and damage fund for decades – to firm opposition from rich polluters.

The issue was not even on the agenda at Cop26 last year or at the annual Bonn interim climate talks in June. But the Egyptian presidency backed its inclusion at Cop27. It became the main issue for climate campaigners and the global press.

Comment by Riaz Haq on February 27, 2023 at 12:22pm

Money and Empire: Charles P. Kindleberger and the Dollar System

By Perry Mehrling

https://www.bu.edu/gdp/2022/11/08/money-and-empire-charles-p-kindle...

Charles P. Kindleberger ranks as one of the 20th century’s best known and most influential international economists. A professor of International Economics at the Massachusetts Institute of Technology (MIT) from 1948-1976, he taught cosmopolitanism to a world riven with nationalist instinct. He worked to relieve the fears of his fellow citizens through education, thinking that if people understood how the dollar system worked, they would stop trying to destroy it. His research at the New York Federal Reserve and Bank for International Settlements during the Great Depression, his wartime intelligence work and his role in administering the Marshall Plan gave him deep insight into how the international financial system really operated.

In the new book, “Money and Empire: Charles P. Kindleberger and the Dollar System,” Perry Mehrling traces the evolution of Kindleberger’s thinking in the context of a “key-currency” approach to the rise of the dollar system, which he argues is an indispensable framework for global economic development in the post-World War II era. The overall arc of the book follows the transformation of the dollar system, as seen through the eyes of Kindleberger.

The book charts Kindleberger’s intellectual formation and his evolution as an international economist and historical economist. As a biography of both the dollar and Kindleberger, this book is also the story of the development of ideas about how money works. In telling this story, Mehrling ultimately sheds light on the underlying economic forces and political obstacles shaping a globalized world.

Comment by Riaz Haq on March 8, 2023 at 5:05pm

India's oil deals with Russia dent decades-old dollar dominance | Reuters


https://www.reuters.com/markets/currencies/indias-oil-deals-with-ru...

India in the last year displaced Europe as Russia's top customer for seaborne oil, snapping up cheap barrels and increasing imports of Russian crude 16-fold compared to before the war, according to the Paris-based International Energy Agency. Russian crude accounted for about a third of its total imports.
----------

NEW DELHI/LONDON, March 8 (Reuters) - U.S.-led international sanctions on Russia have begun to erode the dollar's decades-old dominance of international oil trade as most deals with India - Russia's top outlet for seaborne crude - have been settled in other currencies.

The dollar's pre-eminence has periodically been called into question and yet it has continued because of the overwhelming advantages of using the most widely-accepted currency for business.

India's oil trade, in response to the turmoil of sanctions and the Ukraine war, provides the strongest evidence so far of a shift into other currencies that could prove lasting.

The country is the world's number three importer of oil and Russia became its leading supplier after Europe shunned Moscow's supplies following its invasion of Ukraine begun in February last year.


-------

Some Dubai-based traders, and Russian energy companies Gazprom and Rosneft are seeking non-dollar payments for certain niche grades of Russian oil that have in recent weeks been sold above the $60 a barrel price cap, three sources with direct knowledge said.

The sources asked not to be named because of the sensitivity of the issue.

Those sales represent a small share of Russia's total sales to India and do not appear to violate the sanctions, which U.S. officials and analysts predicted could be skirted by non-Western services, such as Russian shipping and insurance.

Three Indian banks backed some of the transactions, as Moscow seeks to de-dollarise its economy and traders to avoid sanctions, the trade sources, as well as former Russian and U.S. economic officials, told Reuters.

But continued payment in dirhams for Russian oil could become harder after the United States and Britain last month added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions list.

MTS had facilitated some Indian oil non-dollar payments, the trade sources said. Neither MTS nor the U.S. Treasury immediately responded to a Reuters request for comment.

An Indian refining source said most Russian banks have faced sanctions since the war but Indian customers and Russian suppliers are determined to keep trading Russian oil.

"Russian suppliers will find some other banks for receiving payments," the source told Reuters.

"As it is, the government is not asking us to stop buying Russian oil, so we are hopeful that an alternative payment mechanism will be found in case the current system is blocked."

Comment by Riaz Haq on March 13, 2023 at 8:46pm

Arif Rafiq
@ArifCRafiq
“The only reason that America can run the deficits that it does is because the dollar is the global reserve…As we move to a more multipolar financial system, it will be tougher for the US to run big debts.”

https://twitter.com/ArifCRafiq/status/1635273905085755394?s=20


---------

Why Biden is wise to reduce the deficit
Progressives are a bit too sanguine about debt levels

https://www.ft.com/content/c99ba51b-3aac-40a4-b393-6fb5f56ba71b?acc...

by Raana Foroohar





Anyway, although we all know that tax cuts and trickle-down economics haven’t created more broadly shared prosperity, I’ve long thought that progressives were a bit too sanguine about debt levels. Let’s say, just for argument’s sake, that a mild recession produced a 20 per cent decline in tax receipts over the next year or two, which is not an unusual outcome during a down cycle, according to one of my favourite market analysts, Luke Gromen, who wrote about the topic recently in an issue of his newsletter, The Forest for the Trees. Let’s also assume a 4.5 per cent interest rate on federal debt (which may be a conservative estimate if the Fed keeps hiking), and a 12 per cent increase in entitlement payouts (also conservative given the number of ageing Americans). Taking those figures, Gromen shows that the interest expense of government debt would go back to the Covid crisis peaks that resulted in a “crash” in the UST market, and subsequently pushed the Fed into more quantitative easing.

I’m not saying this is about to happen. But I am saying that it’s a tricky time in the economy, with the end of cheap money, cheap labour and cheap energy, and that makes it a potentially dangerous time for any country or company holding much debt. The failure of Silicon Valley Bank and the subsequent dominoes now falling has reminded us that there is plenty of hidden risk in the system at the moment.


------



The only reason that America can run the deficits that it does is because the dollar is the global reserve. That won’t change immediately, but I do believe that the balance of global reserves will change significantly over time, in part because energy autocrats have seen dollar reserves weaponised since the war in Ukraine. As we move to a more multipolar financial system, it will be tougher for the US to run big debts. We will eventually have to come back to the kind of guns and butter debates about spending that we stopped having from the late 1970s onwards. For this reason, I think it’s wise for the Biden administration to show it cares about debt. Ed, would you agree, and how will it play politically?

---------


Edward Luce Responds:




Will the resulting deficits endanger the US dollar? I don’t see much sign of that. The US dollar has accounted for around 60 per cent of global central bank reserves for the last couple of decades and that share has barely shifted. Countries without reserve currencies run budget deficits of 5 per cent of GDP without the sky falling on their heads. The key is to ensure that US trend growth is higher than interest rates on federal debt in order to hold it at stable levels. If that proves impossible, then the greenback could lose its throne. Even were Armageddon to strike, however, Art Laffer would still be available for power point presentations on his magical curve.

Comment by Riaz Haq on March 25, 2023 at 5:00pm

US bank trouble heralds end of dollar reserve system – Asia Times



https://asiatimes.com/2023/03/us-bank-trouble-heralds-end-of-dollar...

Bank crisis not a credit quality problem but stems instead from now-impossible task of financing America’s ever-expanding foreign debt

By DAVID P. GOLDMAN

“The dollar reserve system will go out not with a bang, but a whimper.”

Good article on how foreign banks will slowly start unwinding their $18 trillion of dollar-based assets, including US treasuries.

Gold and Chinese Yuan will become vital players in global trade. (Local currency swaps too).

Those who pooh-pooh yuan don’t understand that petroyuan is already a reality — Russian and Iranian oil are being sold in RMB.

And consider Turkiye’s currency (Lira) which was on a precipitous downfall but was saved by the embrace of China’s yuan.

Other countries should have really started de-dollarization after the 2008 financial crisis, but they succumbed to geopolitical pressure.


-----------


The US banking system is broken. That doesn’t portend more high-profile failures like Credit Suisse. The central banks will keep moribund institutions on life support.

But the era of dollar-based reserves and floating exchange rates that began on August 15, 1971, when the US severed the link between the dollar and gold, is coming to an end. The pain will be transferred from the banks to the real economy, which will starve for credit.

And the geopolitical consequences will be enormous. The seize-up of dollar credit will accelerate the shift to a multipolar reserve system, with advantage to China’s RMB as a competitor to the dollar.

Gold, the “barbarous relic” abhorred by John Maynard Keynes, will play a bigger role because the dollar banking system is dysfunctional, and no other currency—surely not the tightly-controlled RMB—can replace it. Now at an all-time record price of US$2,000 an ounce, gold is likely to rise further.

The greatest danger to dollar hegemony and the strategic power that it imparts to Washington is not China’s ambition to expand the international role of the RMB. The danger comes from the exhaustion of the financial mechanism that made it possible for the US to run up a negative $18 trillion net foreign asset position during the past 30 years.

Germany’s flagship institution, Deutsche Bank, hit an all-time low of 8 euros on the morning of March 24, before recovering to 8.69 euros at the end of that day’s trading, and its credit default swap premium—the cost of insurance on its subordinated debt—spiked to about 380 basis points above LIBOR, or 3.8%.

That’s as much as during the 2008 banking crisis and the 2015 European financial crisis, although not quite as much as during the March 2020 Covid lockdown, when the premium exceeded 5%. Deutsche Bank won’t fail, but it may need official support. It may have received such support already.

This crisis is utterly unlike 2008, when banks levered up trillions of dollars of dodgy assets based on “liar’s loans” to homeowners. Fifteen years ago, the credit quality of the banking system was rotten and leverage was out of control. Bank credit quality today is the best in a generation. The crisis stems from the now-impossible task of financing America’s ever-expanding foreign debt.

It’s also the most anticipated financial crisis in history. In 2018, the Bank for International Settlements (a sort of central bank for central banks) warned that $14 trillion of short-term dollar borrowings of European and Japanese banks used to hedge foreign exchange risk were a time bomb waiting to explode (“Has the derivatives volcano already begun to erupt?”, October 9, 2018).

In March 2020, dollar credit seized up in a run for liquidity when the Covid lockdowns began, provoking a sudden dearth of bank financing. The Federal Reserve put out the fire by opening multi-billion-dollar swap lines to foreign central banks. It expanded those swap lines on March 19.

Comment by Riaz Haq on March 25, 2023 at 5:01pm

US bank trouble heralds end of dollar reserve system – Asia Times



https://asiatimes.com/2023/03/us-bank-trouble-heralds-end-of-dollar...


Correspondingly, the dollar balance sheet of the world banking system exploded, as gauged by the volume of overseas claims in the global banking system. This opened up a new vulnerability, namely counterparty risk, or the exposure of banks to enormous amounts of short-term loans to other banks.

America’s chronic current account deficits of the past 30 years amount to an exchange of goods for paper: America buys more goods than it sells, and sells assets (stocks, bonds, real estate, and so on) to foreigners to make up the difference.

America now owes a net $18 trillion to foreigners, roughly equal to the cumulative sum of these deficits over 30 years. The trouble is that the foreigners who own US assets receive cash flows in dollars, but need to spend money in their own currencies.

With floating exchange rates, the value of dollar cash flows in euro, Japanese yen or Chinese RMB is uncertain. Foreign investors need to hedge their dollar income, that is, sell US dollars short against their own currencies.

That’s why the size of the foreign exchange derivatives market ballooned along with America’s liabilities to foreigners. The mechanism is simple: If you are receiving dollars but pay in euros, you sell dollars against euros to hedge your foreign exchange risk.

But your bank has to borrow the dollars and lend them to you before you can sell them. Foreign banks borrowed perhaps $18 trillion from US banks to fund these hedges. That creates a gigantic vulnerability: If a bank looks dodgy, as did Credit Suisse earlier this month, banks will pull credit lines in a global run.

Before 1971, when central banks maintained exchange rates at a fixed level and the United States covered its relatively small current account deficit by transferring gold to foreign central banks at a fixed price of $35 an ounce, none of this was necessary.

The end of the gold link to the dollar and the new regime of floating exchange rates allowed the United States to run massive current account deficits by selling its assets to the world. The population of Europe and Japan was aging faster than the US, and had a correspondingly greater need for retirement assets. That arrangement is now coming to a messy end.

One failsafe gauge of global systemic risk is the price of gold, and especially the price of gold relative to alternative hedges against unexpected inflation. Between 2007 and 2021, the price of gold tracked inflation-indexed US Treasury securities (“TIPS”) with a correlation of about 90%.

Starting in 2022, however, gold rose while the price of TIPS fell. Something like this happened in the aftermath of the 2008 global financial crisis, but the past year’s move has been far more extreme. Shown below is the residual of the regression of the gold price against 5- and 10-year maturity TIPS.


If we look at the same data in a scatter plot, it’s clear that the linear relationship between gold and TIPS remains in place, but it has shifted both its baseline and steepened its slope.

In effect, the market worries that buying inflation protection from the US government is like passengers on the Titanic buying shipwreck insurance from the captain. The gold market is too big and diverse to manipulate. No one has a lot of confidence in the US Consumer Price Index, the gauge against which the payout of TIPS is determined.

The dollar reserve system will go out not with a bang, but a whimper. The central banks will step in to prevent any dramatic failures. But bank balance sheets will shrink, credit to the real economy will diminish and international lending in particular will evaporate.

At the margin, local currency financing will replace dollar credit. We have already seen this happen in Turkey, whose currency imploded during 2019-2021 as the country lost access to dollar and euro financing.

Comment by Riaz Haq on March 29, 2023 at 2:08pm

The dollar is our superpower, and Russia and China are threatening it

by Fareed Zakaria

https://www.washingtonpost.com/opinions/2023/03/24/us-dollar-streng...


The dollar is America’s superpower. It gives Washington unrivaled economic and political muscle. The United States can slap sanctions on countries unilaterally, freezing them out of large parts of the world economy. And when Washington spends freely, it can be certain that its debt, usually in the form of T-bills, will be bought up by the rest of the world.
Sanctions imposed on Russia for its invasion of Ukraine combined with Washington’s increasingly confrontational approach to China have created a perfect storm in which both Russia and China are accelerating efforts to diversify away from the dollar. Their central banks are keeping less of their reserves in dollars, and most trade between them is being settled in the yuan. They are also, as Putin noted, making efforts to get other countries to follow suit.

-----------

China Says It Will Set up Yuan Clearing Arrangements in Brazil


https://money.usnews.com/investing/news/articles/2023-02-07/china-s...

BEIJING (Reuters) - China's central bank has signed a memorandum of understanding on setting up yuan clearing arrangements in Brazil, it said on Tuesday, in a move to help boost the currency's global clout.

The establishment of such arrangements for the renminbi (RMB), or the yuan, would be beneficial to cross-border transactions, and further promote bilateral trade and investment facilitation, the People's Bank of China said on Tuesday.

China has in recent months signed similar yuan clearing deals with Pakistan, Kazakhstan and Laos.

Two-way trade between China and Brazil reached $172 billion in 2022, according to data from Chinese customs.

China has been trying to boost the yuan globally since 2009 to reduce reliance on the U.S. dollar in trade and investment settlements and challenge the greenback's role as the world's major reserve currency.

Comment by Riaz Haq on April 5, 2023 at 4:46pm

China, Malaysia to discuss Asian Monetary Fund to reduce dependence on US dollar

https://www.foxbusiness.com/economy/china-malaysia-discuss-asian-mo...

China and Brazil recently struck a deal to ditch the U.S. dollar in favor of their own currencies in trade transactions

Malaysia is reviving a decades-old proposal to create an Asian Monetary Fund to reduce dependence on the U.S. dollar, with China being open to talks about the matter.

Malaysian Prime Minister Anwar Ibrahim proposed the fund last week, Bloomberg reported.

"When I had a meeting with President Xi Jinping, he immediately said, ‘I refer to Anwar’s proposal on the Asian Monetary Fund’, and he welcomed discussions," Anwar, who also serves as the country's finance minister, told the Malaysian parliament on Tuesday.

"There is no reason for Malaysia to continue depending on the dollar," he added.

Anwar said he shelved forming an Asian Monetary Fund during his first stint as finance minister in the 1990s. At the time, the idea failed to gain traction as the U.S. dollar was still seen as strong, he said.

The dollar index reached a record-high in September 2022 as other Asian currencies hit multi-decade lows, the news report said.

Recently, China and Brazil struck a deal to ditch the U.S. dollar in favor of their own currencies in trade transactions.

Comment by Riaz Haq on April 26, 2023 at 8:40pm

Genevieve Roch-Decter, CFA
@GRDecter
Chinese Yuan overtakes US dollar as most-used currency in China's cross-border transactions for the first time in history.

Yuan-share rose to a record high of 48%, UP from nearly zero in 2010.

U.S-share declined to 47%, DOWN from 83% over the same period.

Wow.

https://twitter.com/GRDecter/status/1651280199034585089?s=20



The dollar falls behind the yuan for the first time in Chinese cross-border transactions


https://markets.businessinsider.com/news/currencies/dedollarization...

The yuan overtook the dollar as the most used currency for Chinese cross-border transactions.

Its use in cross-border payments and receipts increased to 48% versus 47% for the dollar.

China is pursuing further use of the yuan to avoid currency mismatches in trade.

For the first time ever, the yuan has eclipsed the US dollar as the most used currency for Chinese cross-border transactions.

The yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a Reuters calculation of data from China's State Administration of Foreign Exchange.


In 2010, the yuan's share was nearly 0% while the dollar's was 83%, according to Bloomberg. The reversal comes amid China's efforts to empower the yuan, also known as the renminbi, in trade and capital markets.

Meanwhile, Chinese bonds have seen greater inflows recently, alongside outflow increases to Hong Kong stocks.

Increased reliance on the yuan will reduce any risks of currency mismatches. For this reason, China's State Council is encouraging expansions in the renminbi's use for cross-border transactions.

But the dollar remains dominant beyond China's borders. For example, the yuan's share of global currency transactions for trade finance was just 4.5% in March compared to 83.7% for the dollar, per Reuters.



Still, the yuan has continued to make inroads, especially since Western sanctions that froze Russia's foreign exchange reserves highlighted the potential risk of holding dollars.

China has entered into non-dollar trade agreements with countries such as Brazil. And the yuan has overtaken the dollar as Russia's most traded currencysince Moscow was largely cut off from global finance after its invasion of Ukraine last year.

But analysts say the dollar is unlikely to lose its dominance in global markets in the foreseeable future. That's as the yuan is too tightly controlled by the Chinese government.

Read the original article on Business Insider

Comment by Riaz Haq on May 2, 2023 at 6:51pm

Speaking at ET Awards for Corporate Excellence 2023 last week, the veteran banker had said, “I genuinely feel that the biggest financial terrorist in the world is the US dollar." Telling why he feels this way, the Kotak Mahindra Bank chief stated that all our money is in nostro accounts and somebody in the US can say

https://youtu.be/QXC9BsiRLlU

-----------------

'I'd like to correct': Uday Kotak clarifies ‘financial terrorist’ statement about US dollar

In the March quarter, Kotak Mahindra Bank witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore

https://www.businesstoday.in/industry/banks/story/uday-kotak-clarif...

Uday Kotak, the CEO of Kotak Mahindra Bank, has provided further clarification on his recent statement about the US dollar being the "biggest financial terrorist in the world." Kotak clarified in a tweet that his statement about the "financial terrorist" was not specifically aimed at the US dollar but rather at the disproportionate power that any reserve currency holds.

According to Kotak, the US dollar's status as a reserve currency gives it an unfair advantage in controlling global transactions, which could potentially result in other countries becoming overly reliant on it. He further elaborated that a reserve currency wields significant power, including the ability to dictate whether money in nostro accounts can be withdrawn, which can have a profound impact on the global financial landscape. Kotak believes that the world is actively searching for an alternative reserve currency and posits that India has the potential to promote the Indian Rupee as a strong contender to fill this role on the global stage. By doing so, he suggested that India can reduce its dependency on the US dollar and promote a more diversified, stable global financial system.

He clarified his previous statement in a tweet saying, "In a recent discussion on the US dollar, I inadvertently used words 'financial terrorist,' which I would like to correct. What I meant was that a reserve currency has disproportionate power, whether it is nostro account, 500 bps rate increase, or emerging countries holding $ for liquidity."

In the March quarter, Kotak Mahindra Bank - the second-largest private bank in India - witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore. The bank's net interest income (NII) also saw a significant jump of 35 per cent YoY to reach Rs 6,102.6 crore.

--------------

A nostro account refers to an account that a bank holds in a foreign currency in another bank. Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign exchange and trade transactions.

https://www.investopedia.com/terms/n/nostroaccount.asp#:~:text=A%20....

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