Zero Hedge — Beijing Sounds Alarm About Dollar's Reserve Status

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, delivered a strong warning on the U.S. currency this week.

He made four points in a speech at the Lujiazhui Forum in Shanghai: 

A. The Fed is the de facto central bank of the world. When its policy targets its own economy without considering the spillover effect, the Fed is “very likely to overdraft the credit of the dollar and the U.S.”

B. The pandemic may persist for a long period of time, and countries keep throwing money at the problem with a diminished impact. “It is recommended that you think twice and reserve some policy space for the future.”

C. There is no free lunch. Watch out for inflation.

D. Financial markets are disconnected from the real economy, and such distortions are “unprecedented.” It’s going to be “really painful,” when the policy withdrawal starts....

In all likelihood the Chinese are concerned about loose US monetary policy after the FX rate, leading to USD depreciation against the RMB, which would disadvantage Chinese exports. While China is making the transition to a consumer-led economy, the Chinese economy is still export-driven as "the world's factory." The Chinese are concerned that this global factory ramp up quickly as the pandemic winds down. Most costly Chinese exports would stand in the way of that.

The subtler message to the US is that if the US wishes top maintain its leadership of the global "rules-based" order, it needs to look to the stability of the USD as the global reserve currency. That is to say, the US is not completely free to set its monetary policy based on domestic issues alone. In effect, issuing the global reserve currency limits US currency sovereignty if it wishes to preserve the status quo.

Zero Hedge

Beijing Sounds Alarm About Dollar's Reserve Status
Tyler Durden