RMB ‘Trade Invoicing’ vs. the Dollar Bubble

March 31, 2023, 2022 (EIRNS)—Gillian Tett’s piece to “Prepare for a Multipolar Currency World” in the Financial Times is not the obvious umpteenth article on the subject. Listing steps in this direction, from Putin moving to renminbi-financed trade with Asia, Africa and Latin America, the Saudis, Brazil and “France just did its first liquid natural gas sale in RMB” she says the following:

Ironically Tett contends, the banking crisis has strengthened the dollar through a dollar-swap increased demand (not quite true: the dollar has fallen about 7% against its index for two consecutive quarters, and has fallen 7% against the yuan—which is not included in the dollar index, the so-called DXY—during that time, including a small further fall since March 8.)

But, assuming that she is right, RMB use is backed by real stuff—trade. Citing a paper by the Center for Economic and Policy Research, she writes that

“as Chinese trade has expanded in recent years, RMB use has risen too. So much so, in fact, that it now exceeds euro-usage for trade invoicing, which is ‘striking, given China’s low degree of capital account openness’, the CEPR says. And it argues that ‘contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB from playing a stronger role as an international and reserve currency.’ After all, it notes, a $200 billion offshore RMB market has already emerged—and the currency is being ‘use[d] in invoicing and settling China’s foreign trade and payments’ and ‘a global network of clearing and payments.’ ”

Importantly, Tett is not discussing the prospect of a new commodity-based trade currency, but that of a new role of the renminbi as a reserve currency. It is relevant, though, that she must admit that, contrary to free-market dogmas, the RMB as a reserve currency is possible in a regime of capital controls. Not only that, but a portion of world trade larger than the euro is already financed in RMB!

So, “trade invoicing” might turn the situation around in the mid term and this will be a shock for the U.S., she says. The shock could come earlier, though.... (author’s comment).