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Prof. Huang Yiping: A Weaponized US Dollar Causes Changing Attitudes

Apr 06-2023   



Commenting on the root cause of the de-USD trend around the world, Prof. Huang Yiping, Deputy Dean of the NSD, traced it to the US weaponizing the greenback and the international payment system, which has led many countries to see a sharp rise in their asset risk premium. He made the remarks during media interviews on March 31, the last day of the Boao Forum for Asia Annual Conference.

 

That the attitude towards the US dollar has shifted is a normal phenomenon, said Prof. Huang. Many countries still hold US dollars but there is the likelihood that a spike in risk can bring an enormous impact. Previously when asked if the US would expropriate China’s foreign reserves parked in US treasury bills, Prof. Huang would said no for it would also greatly hurt the US. Yet now he believed the US is doing just that. With a weaponized greenback, its users are subject to different possible outcomes nowadays.

 

Currency mismatch is a crucial reason why many emerging markets have suffered crises, said Prof. Huang. Many countries are inclined to use their own currencies to pay for debts, but not everyone is capable enough to internationalize its currency. Consequently, when a country’s currency falls in value, it is saddled with more costs to pay back USD-denominated debts, which, in some circumstances, triggers panic and the resultant capital flight and even financial crisis.

 

The immense benefits of settling trade in one’s own currency explain why China and Brazil have agreed to do just so. Prof. Huang said that the move will aid businesses to form relatively stable expectations and help economic activities to reduce the uncertainty and difficulty caused by fluctuations in US dollar exchange rates. If the whole world settles in US dollars, an upside is lower trading costs. But under ripe conditions, all countries should try to internationalize their currencies, said Prof. Huang.

Prof. Huang Yiping: A Weaponized US Dollar Causes Changing Attitudes

Apr 06-2023   



Commenting on the root cause of the de-USD trend around the world, Prof. Huang Yiping, Deputy Dean of the NSD, traced it to the US weaponizing the greenback and the international payment system, which has led many countries to see a sharp rise in their asset risk premium. He made the remarks during media interviews on March 31, the last day of the Boao Forum for Asia Annual Conference.

 

That the attitude towards the US dollar has shifted is a normal phenomenon, said Prof. Huang. Many countries still hold US dollars but there is the likelihood that a spike in risk can bring an enormous impact. Previously when asked if the US would expropriate China’s foreign reserves parked in US treasury bills, Prof. Huang would said no for it would also greatly hurt the US. Yet now he believed the US is doing just that. With a weaponized greenback, its users are subject to different possible outcomes nowadays.

 

Currency mismatch is a crucial reason why many emerging markets have suffered crises, said Prof. Huang. Many countries are inclined to use their own currencies to pay for debts, but not everyone is capable enough to internationalize its currency. Consequently, when a country’s currency falls in value, it is saddled with more costs to pay back USD-denominated debts, which, in some circumstances, triggers panic and the resultant capital flight and even financial crisis.

 

The immense benefits of settling trade in one’s own currency explain why China and Brazil have agreed to do just so. Prof. Huang said that the move will aid businesses to form relatively stable expectations and help economic activities to reduce the uncertainty and difficulty caused by fluctuations in US dollar exchange rates. If the whole world settles in US dollars, an upside is lower trading costs. But under ripe conditions, all countries should try to internationalize their currencies, said Prof. Huang.