Matthew Pines@matthew_pines
Jan 20, 2023
14 tweets
I feel like there is a consistent talking-past each other in these debates over "dedollarization", with different standards of what defines the "threat", e.g.:
A. Restructuring of global capital/reserve flows & BoPs.
vs.
B. Construction of sanctions-resistant clearing systems.
Michael Pettis@michaelxpettis
Jan 20 23
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1/15
Since the 1960s few arguments in international finance have been as exciting as "the coming demise of the dollar", but these arguments seem always to founder on the same set of mistakes.
ft.com/content/3e05b4
Pettis is right to point out that (A) is unlikely over any medium-term time horizon (3-5 years), and will require dramatic changes in China's internal political economy, immature financial system, and international power projection capabilities.
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Matthew Pines@matthew_pines
Dec 12 22
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Bottom-line: China has to be the source of final consumer demand for a good chunk of its geoeconomic sphere of influence for the RMB to be a regional reserve currency (“Asian Euro”) and to initiate anything like a proto-euroyuan-CGB recycling system.
This is quite a ways off.
However, that doesn't mean (B) isn't a major national security & geoeconomic threat. It is!
A critical power the U.S. draws from the global dollar system is the ability to monitor (FINCEN) and block (OFAC) transactions:
I.e.. "panopticon" & "chokepoint"
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Matthew Pines@matthew_pines
Jan 20 23
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Zoltan is right to point to cross-border CBDCs as the true medium-term (3-6 yr) threat to the bank-intermediated dollar system (qua monetary panopticon and chokepoint network).
See today’s report from the BIS charting progress and pilots here by EMs: bis.org/publ/othp51.htm
China's strategic efforts (across military, political, & economic domains) follow a deliberate sequence: block-build-expand.
Here they want to mitigate sanctions risk by building alternative rails/systems, then gradually expand (CIPS, swaps, DC/EP, etc.)
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Matthew Pines@matthew_pines
Jan 04 23
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My fish brain view of this stuff is China is *attempting* to:
1. Mitigate sanctions risk asap via DC/EP + CIPS w/ GCC/OPEC+
2. Gradually denominate its import bill in RMB w/ more commodity suppliers
3. Eventually get aligned bloc to issue/hold CNY assets/bonds (cf Bond Connect)
Non-SWIFT financial infrastructure like mBridge and other EM-driven cross-border CBDCs goes hand-in-hand with China's diplomatic efforts to reorient the global south (BRICS+) marginally away from the G7 sphere of influence.
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Matthew Pines@matthew_pines
Dec 30 22
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Rather than petroyuan per se, China’s near-term (3-5 yr) priority is expanding settlement rails outside reach of OFAC/FINCEN panopticon & onshoring forwards pricing for energy transition commodities.
Thus, DC/EP + CIPS + Stock & Bond Connect + Shanghai Futures Exchange are key.
It's BRI loans may be net money losers, but they work to spread political influence, China's techno-governance stack (Huawei/ZTE), generate external demand for domestic industrial overcapacity, & secure long-term interest in critical natural resources.
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Matthew Pines@matthew_pines
Jan 03 23
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95%+ of US funding is grants, vs lending; China’s is the opposite.
If the avg. African country increased its voting in the UNGA to align w/ China by 10%, it can expect to see its Chinese aid increase by 86%.
BRI banks recycle surplus USD seeking yield over UST rate of return.
These moves come in the context of an intensifying US-China strategic competition, threating to spill over into outright economic war while raising tail risks of a SCS/Taiwan confrontation.
Export controls & outbound investment screens are just the start.
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Matthew Pines@matthew_pines
Oct 30 22
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1. Strategic Competition -> ok w/ other guy gaining as long you gain more.
2. Strategic Rivalry -> try to impose a loss on the other guy as long as you don’t lose.
3. Strategic Enmity -> willing to hurt your own interests as long as it hurts the other guy more.
Now moving 2–>3
Both the U.S. and China are trying to "weaponize" this economic interdependence:
US to stall/deter a rising competitor ("pacing threat")
China to influence western elites (w/ $), bullwhip supply chains, and build systems to resist economic coercion.
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Matthew Pines@matthew_pines
Jan 19 23
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JP Morgan is quietly helping ByteDance—a Chinese tech firm considered by the US to be a national security threat—develop & expand a global payments platform.
Several JPM execs have even flipped over to lead the effort.
Jamie D. chose profit over values.
forbesmiddleeast.com/money/fintech/
While Paul Tucker (Global Discord, fmr BOE) analogizes this US-China relationship to the century-long strategic rivalry b/t France and Britain...
I worry it's closer to the acute instability that emerged in the English-German dynamic pre-WW1:
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Matthew Pines@matthew_pines
Dec 11 22
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History has some lessons to teach on the financial and economic precursors to great power war.
This short article makes a few important points that we should all bear in mind when evaluating rising geopolitical tensions:
encyclopedia.1914-1918-online.net/pdf/1914-1918-
There were similar debates at the time between those who argued:
(1) such tight globalization and economic interdependence would make war mutual suicide, and thus very unlikely
vs.
(2) rising powers w/ ambition & capability rarely accept the status quo
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Matthew Pines@matthew_pines
Jan 16 23
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The US intelligence community noted this worrying dynamic in a recent assessment:
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Matthew Pines@matthew_pines
Jul 22 22
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EMERGING DYNAMIC 3: INTERNATIONAL — MORE CONTESTED, UNCERTAIN AND CONFLICT-PRONE
Multi-polar geopolitical system driven by US-China rivalry.
Weakening global norms, institutions, & trade.
Rising chance of major power war w/ more proxy conflicts & key role for non-state actors.
There is a tight coupling between geopolitical and monetary risk.
Any assessment of some future evolution (or disruptive break-down) of the global monetary system has to take into critical account the future evolution of the geopolitical system.
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Matthew Pines@matthew_pines
Oct 11 22
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Long stability in the geopolitical order has bred its discontents.
Rising & revanchist challenger states now seek to disrupt this order & reset the terms of the global system.
Critically, this geopolitical instability drives, and is reflexively driven by, monetary instability.
The key structures holding the global order together --international law, nation state balance of power and system of economic/financial arrangement -- are coming under acute stress (and this stress will only grow in the coming years).
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Matthew Pines@matthew_pines
Oct 11 22
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Long stability in the geopolitical order has bred its discontents.
Rising & revanchist challenger states now seek to disrupt this order & reset the terms of the global system.
Critically, this geopolitical instability drives, and is reflexively driven by, monetary instability.
Systems under acute stress can seem stable and enduring, up to some (unknown) critical point... where some threshold is reached that triggers a phase change and new, volatile dynamics rapidly emerge where scenarios once thought unthinkable come into view.
bitcoinmagazine.com/future-geopoli
Matthew Pines
@matthew_pines
Director of Intelligence @KrebsStamos | National Security Fellow @btcpolicyorg | physics & philosophy @ JHU + public policy @ LSE | geopol/tech/cyber/#Bitcoin
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