“The yuan is far from being an international currency”

President Lula caused trepidation when he questioned the universality of the dollar in China. In an interview with DW, the economist Lia Valls clarifies the origin of this domination and the prospects for a new universal and defended monetary order that the countries of the so-called Brics (Brazil, Russia, India, China and South Africa) use their own currency among themselves.

“We need to have a currency that makes countries a little more peaceful,” Lula defended during his trip to China, Brazil’s main trading partner.

The use of the dollar as world currency dates back to the end of the Second World War, from which the United States emerged victorious: its currency was later adopted as the basis for international transactions, replacing gold.

In an interview with DW, Lia Valls, professor of economics at the UERJ, research associate at the Brazilian Institute of Economics at the Getulio Vargas Foundation (FGV/Ibre), and senior at the Brazilian Center for International Relations (Cebri) he says that, even with China’s economic growth, there is still little chance of changing this pattern.

“China, as powerful as it is, doesn’t have the same credibility in the monetary issue that the United States has and that took a while to build,” he says, citing Chinese government measures that control the outflow of the currency in the Asian country.

According to Valls, the Brazilian government’s hints at the monetary issue are seeking greater multipolarity with Brazil’s major economic partner, but, at the same time, they do not represent resistance to the United States: “I don’t imagine that Lula and the Brazilian government have the intention to intensify this tone.”

DW: Lula criticized the dollar as an international trade currency this Thursday (04/13). Why is this the rule today?

Lia Valls: For a currency to be accepted and fulfill its role, it must be accepted internationally as a medium of exchange, a unit of account and a store of value. This is the case with the dollar.

The US currency achieved this hegemonic position as early as World War II, when the International Monetary Fund (IMF) and an exchange rate system were created in which all currencies were pegged against the dollar. We must remember that the United States ended up victorious in the war, with Europe impoverished. This led to an exit from the gold standard, with the dollar becoming the central currency. Up until then, the guarantee was that all US currency was backed by gold, but that ended in 1971.

Then, over time, the main commodities, such as oil, began to be quoted in dollars. All this gives a lot of strength to the American currency. The dollar has assumed this role, even with other currencies growing strongly. It is he who enters all continents.

The yuan is far from being an international currency in the way we think. Although China is the largest exporter and second largest importer, the Asian country still has capital controls, so the Chinese currency is not fully convertible.

What does it mean to be fully convertible?

It means there is no fear of exchanging currency in any country you go to, because the issuing country is always guaranteed access to that currency. Not so in China, which places controls on capital outflows with money. The yuan is not fully convertible, as there are stricter controls on its production.

And what kind of advantages does the use of the dollar as the basis of the world economy bring to the United States?

It’s a huge plus. The financial sanctions are there to prove it. Furthermore, the monetary policy chosen by the United States affects the world as a whole. Then, being an international currency, there’s another big advantage, because the United States can run a big trade deficit, which it does, and not worry about it.

In Brazil we already had another currency crisis, when you start having a current account deficit and it is not possible to cover it, because the country does not issue dollars. The only way for these countries to attract dollars is through loans or trade. This gives the United States a very large political force in the world economy.

Is there the possibility to change this scheme, both to the yuan and to another currency? Is it feasible in the medium term?

The idea of ​​having an alternative currency to the dollar has been around since the conference that created the IMF. The Europeans did not want the dollar to be the international currency par excellence, as they lost power with it. The great European negotiator was [economista britânico] John Maynard Keynes [1883-1946]who advocated the creation of a single international currency, but there was no strength for it.

In 2008, during the global economic crisis, when the BRICS were clearly under construction, the importance of having an international currency was discussed at one of the bloc’s summits. These are all attempts to undo hegemony from the dollar. But it’s something that I think is unlikely to happen in a notable horizon.

Because hegemony has a warlike side and the Americans are the main warlike power; a political side, there we have more controversy; and the economic one, where there is a clear technological leadership dispute between the US and China, with China growing very rapidly.

The Chinese have huge reserves, but a lot in US government bonds, so these countries want to diversify their international reserves more, this is a concern, especially for China.

Recently, Brazil and China signed an agreement to facilitate direct transactions between the yuan and the real, without the use of the dollar. What impact can this have?

China wants to increase the degree of internationalization of its currency, which is why it has sought these agreements. Which does not mean that all trade between Brazil and China will be done in the local currency.

The government has some power, but it won’t prohibit Brazilian exporters from sometimes wanting to receive dollars. Because whoever spends the money next is the exporter, and he must be interested. China, powerful as it is, does not have the same credibility on the monetary issue as the United States and that took a while to build.

In this context of an attempt at greater global balance, what is the importance of initiatives such as the BRICS and the New Development Bank (NDB)?

The multilateral system created after the Second World War is in crisis. The World Trade Organization (WTO) has failed to make much progress in the negotiations, given the great tension that exists between the United States and China.

The Chinese want to secure their degree of autonomy, they are not interested in creating more tensions, they already have internal problems – and they want to grow more. But China’s style of growth is seen as disloyal by Europe and the United States, as it is based on a strong state, with many state-owned companies and subsidies, for example.

In this alternative, attempts have been made to create multilateral organizations that better serve the interests of these countries. and give them a greater degree of autonomy, institutions that were not created in the light of US and allied interests, as was the case in the postwar period. China also wants to circulate in an environment which does not mean that it is always at odds with the United States.

Could Lula’s speech have a negative impact on Brazil’s relationship with the United States, both economically and politically?

This will depend on the degree to which this tone is raised or not. Saying that in China is more or less expected. Brazil has never positioned itself as anti-American, Lula is not anti-American, Brazil has strategic alliances with the United States.

Now, the Chinese really do offer Latin America more than the Americans, who ended up worrying about this claim. The same thing of Europe, which wants to go ahead with the agreement between Mercosur and the European Union, because it perceives that China is a competitor in the region.

But I don’t imagine that Lula and the Brazilian government intend to escalate this tone to something anti-American, because a large part of the foreign capital stock is still North American and European, and we are still in a very direct area of ​​influence of the United States.

Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.