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The Resilience of the Dollar’s ‘Exorbitant Privilege’



Russia’s war of extermination in Ukraine has been met with far-reaching sanctions. These have included the freezing of the Russian central bank’s access to its substantial dollar and euro reserves. But financial measures to apply diplomatic pressure on Moscow have yielded a surprising countermeasure: Vladimir Putin now insists that countries must pay Russia in rubles for their purchases of oil and gas. At the same time, the Saudi prince MBS is in talks with Beijing to price some of its oil sales to China in renminbi. Russian entities which have been locked out of the SWIFT system might move towards the Chinese-led Cross-Border Interbank Payment System (CIPS) and find some rupee-ruble bilateral currency swap arrangement with India. More tellingly, as per the IMF, the dollar share of foreign currency reserves in central banks around the world fell from 71% in 1999 to 59% at the end of 2021.

Many analysts like Zoltan Polszar of Credit Suisse have wondered aloud if this might signal the beginning of the end of the US dollar’s role as the world’s reserve currency and international traders’ preferred unit of invoicing. While obituaries to the dollar are never in short supply after a major financial crisis or world-historical event, how accurate are they? And what follows the dollar: the digital renminbi, the euro, a multipolar currency order, or a market in cryptocurrency?

Ever since the Bretton Woods institutions were set up in 1944, the dollar’s ubiquity has undergirded American power and prestige. This was further accelerated by the fall of the Berlin Wall, after which the United States used (or misused, depending on your persuasion) the power of the dollar to sanction 10,000 entities affecting 50 countries with more than 27% of world GDP for crimes ranging from torture to the illicit use of cryptocurrency. As early as the 1960s, Valéry Giscard d’Estaing, then the French Minister of Finance, dubbed it the dollar’s privilège exorbitant (‘exorbitant privilege’). The United States, for example, can never suffer a balance-of-payments crisis as long as it can purchase its imports in its own currency. Also, despite a deeply negative net international investment position and large accumulated current account deficits, the US income balance is positive, with earned income higher than interest expenses by as much as 1.7-1.9%.

Indeed, for all prognostications of doom, the US dollar appreciated in recent weeks relative to most currencies. This despite high global and American inflation, and without the kinds of extreme capital controls and double-digit interest rate policy being pursued by the Russian central bank since February. Most international investors still consider US Treasuries a financial safe haven and value the unrivalled depth and liquidity of America’s capital markets, open to the rest of the world. Network externalities and sheer inertia ensure that the dollar liquidity status quo is largely self-reinforcing. As recently as 2019, 88% of all forex transactions were invoiced in US dollars, making it the global vehicle currency of choice and one for which forex dealers most readily find counterparties. The dollar has a convertibility that the renminbi and the ruble cannot ever aspire to because of the political imperative in an autocracy of a tight control over the domestic financial system. Its other putative rival, the cryptocurrency market, bled almost $2 trillion in value this May. Even much-vaunted ‘stablecoins’ collapsed overnight.

What explains the dollar’s resilience? For starters, the lack of credible alternatives. No other currency offers a similar investor-friendly market infrastructure with comparable liquidity in safe, risk-free assets. Consider the euro, which makes up 20.64% of global forex reserves and is the unit of account for the invoicing of 32% of global payments (not much below the dollar’s 40%). The eurozone runs an external surplus and does not need inflows from reserve managers, and the novel EURObonds issued in the aftermath of Covid are equivalent to only 5% of the stock of US Treasuries in the hands of the public. Also, negative interest rates imply an effective on central bank holdings of euro reserves. German 10-year bonds- the benchmark for continental European bonds- have a negative yield of 0.46%. The market for government bonds traded in euro is fragmented by country of issuance, as opposed to the large and homogeneous US Treasury market.

Even less convincing is the challenge posed by the renminbi (yuan). Despite efforts at internationalisation that began in the 1990s, it remains a half-baked global currency, illiquid and unconvertible outside designated offshore markets. Higher transaction costs have implied that the renminbi is used in only about a quarter of China’s own international trade, which remains largely dollar-denominated. China’s vast and increasing network of international loans and investments is entirely dollar-denominated, as are the listings of its blue-chip firms such as Alibaba, Baidu, and Tencent on the New York Stock Exchange. The Shanghai and Shenzhen stock exchanges allow licensed foreign institutions to trade in A-shares under the QFII and the RQFII programmes, but equivalent listings of non-Chinese blue-chip firms in renminbi is- as yet-inconceivable. Also, China, like Japan in earlier decades, fears ‘excessive’ internationalisation of its national currency as it could undermine its ability to encourage export-oriented manufacturing by maintaining a ‘competitive’ exchange rate. Even at a time when there are political insurance benefits to reserve diversification, foreign exchange holdings in renminbi in 2021 were a meagre 2.79% as opposed to 20.64% for the euro, 5.57% for the Japanese yen, and 4.78% for British pound sterling. The volatility-adjusted returns on renminbi assets are just not as competitive as those of transparent, open economies with liberal democracies such as Japan, the EU, and the UK (all of whom are staunch US allies with similar policy positions) where monetary policy decisions are not subject to the caprice of an opaque, unaccountable politburo. The dollar retains an overwhelming share of 58.81%.

Moreover, borrowing in dollars provides emerging-market banks and firms access to larger and more liquid global credit markets. Thus, firms in emerging markets endogenously take on currency mismatches so that lenders’ investment positions are hedged against local-currency exchange rate risk. Replacing the dollar with renminbi or ruble or even IMF Special Drawing Rights in this scenario would only make the costs of default risk far too prohibitive to allow ease of transactions. Countries which choose to exit the dollar bloc will end up restricting their ability to reassure foreign investors, which could adversely impact their growth strategies. It would also reduce their central banks’ effective, non-fluctuating reserve currency collateral. Even China’s policy of sterilised foreign exchange intervention necessitates a reserve accumulation commitment to support the inflow of private foreign capital. Thus, the United States’ greatest systemic competitor ended up with $3.2 trillion in dollar-denominated foreign currency reserves in November 2021, with nowhere else to park such humongous amounts of money and effectively hedging the US dollar against erosion risk.

To be sure, economic and political mismanagement caused by the extreme polarisation of US domestic politics might one day undermine US Treasuries’ risk-free status. Markets would then adopt a less favourable view of US government creditworthiness and seigniorage claims. The need for a multipolar financial order with more central banks creating liquidity and international financial centres offering pools of it might arise. But for now, seizures of Russian foreign exchange reserves will reinforce the dollar’s dominance rather than weakening it. By raising the costs of misbehaviour, the threat of US sanctions lowers the risk outlook for all private investors and not just US-based ones.

As long as these factors remain in place, the greenback will remain the only show in town.

Sahasranshu Dash is a research associate at the South Asia Institute of Research and Development, Kathmandu, Nepal

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Another Sri Lanka?: Pakistan’s Economic Crisis



Pakistan’s Finance Minister, Miftah Ismail warned of “bad days” ahead as he highlighted the looming economic crisis that the nation finds itself in. Addressing a ceremony at the Pakistan Stock Exchange, the Finance Minister blamed the economic policies taken by the erstwhile Tehreek-e-Insaf government for the dire economic state of the country.

A Nation in Crisis

Pakistan’s foreign-exchange reserves have shrunk by more than half in the past year, to just over $9 billion, or about six weeks’ worth of imports. In 2022, the Pakistani rupee has lost about 30 percent of its value against the US dollar. Furthermore, a rise in inflation and unemployment coupled with political instability has only made matters worse. The three major global rating agencies, Moody’s, Fitch, and S&P Global have downgraded Pakistan’s long-term rating from stable to negative, citing the country’s deteriorating economic position.

The current Pakistani government has blamed former Prime Minister Imran Khan for much of its economic woes. These accusations are not entirely unfounded. While he promised to rid Pakistan of its economic troubles, Mr. Khan failed to deliver. His regime saw an increased rate of inflation and widespread economic mismanagement. By March 2022, the country’s total external debt and liabilities reached $128 billion. Unemployment also surged with Pakistan Institute of Development Economics (PIDE) reporting 31% of the youth to be unemployed. The sudden dissolution of his government added fat to the fire, leading to political instability amid grave economic troubles. However, with a tenure of less than five years, blaming Imran Khan for all of Pakistan’s economic troubles seems far-fetched. Undoubtedly, the economy suffered under the Khan administration but this crisis stems from a much larger flawed system.

Economic Fault Lines

There are various structural flaws that can be located in the Pakistani economy that have time and again led to its unmaking.

The Khan administration is not solely responsible for the ongoing debt crisis. The IMF has provided loans to Pakistan on twenty-two occasions since 1958, imposing 13 Structural Adjustment Programmes (SAP). The focus of these programmes has been to stabilise the economy while sacrificing growth in the short term. However, Pakistan’s growth rate has consistently remained the lowest in South Asia since the introduction of the first SAP in 1988. The sustainability and feasibility of these IMF bailouts have also been brought into question considering the frequent visits Pakistan makes to the IMF requesting for bailouts. For instance, the last bailout Pakistan requested was in May 2019, just three years before the current crisis. Furthermore, the China–Pakistan Economic Corridor (CPEC) created a debt of $64 billion for Islamabad which was originally valued at $47 billion in 2014. The excessive borrowing to resolve short term issues has majorly contributed to Pakistan’s economic troubles.

Another major issue with the Pakistani economy is the huge trade deficit that the country incurs. Pakistan’s trade deficit currently stands at $48.66 billion, a record high. This enormous trade deficit has resulted from lack of exports in the face of steadily growing imports. As the industries fail to meet the requirements of the domestic market, Pakistan has to rely on imports for bridging the gap. Similarly, the exports suffer due to low productivity of agriculture and industries. According to the International Labour Organisation (ILO), Pakistan is ranked 143 out of 185 countries on labour productivity, having its GDP per hour worked at a measly $6.3.

Poor fiscal management and failure of the private sector to adapt to innovations has further shackled the Pakistani economy. All of these issues have contributed to the ensuing political instability.

Another Sri Lanka?

The past few months have witnessed the collapse of Sri Lanka from one of the top performing economies in South Asia to its descent into anarchy. With Pakistan in a similar crisis, it is widely argued that the country might be on its way to follow the island nation into a harrowing economic collapse. With the fate of Sri Lanka at display, it is also feared that escalating political instability might lead to an eventual military rule, as has been the norm in Pakistan.

While the situation is bad and might worsen in the coming days, Pakistan is unlikely to follow the Sri Lankan trajectory. The revival of a 2019 bailout with the IMF on July 13, clearing the way for about $1.2 billion, comes as a relief for Pakistan. This much needed help will allow the country to look for alternative channels to bridge the financing gap. The Pakistani military has also been playing an active role in stabilising the situation, with Army Chief Qamar Bajwa seeking financial help from friendly countries including UAE and Saudi Arabia. The involvement of such external lenders should discourage major creditors like China from requesting immediate repayments, easing the pressure on Islamabad. However, this requires the Pakistani government to keep a check on the steadily increasing imports.

While the present measures are likely to provide respite for now, even in the unlikely scenario of a Sri Lanka-like complete economic collapse, the military would not let the political situation in Pakistan slide into anarchy and is likely to take over by dissolving the government in the worst case.

The Way Ahead

Even though Pakistan might just evade the crisis through IMF involvement and bettering the trade deficit by curbing imports into the country, these are measures that tend to serve short term purposes and are no guarantee against another similar crisis in the coming years. The only sustainable answer would be initiating structural reforms. A self-sufficient economy must be at the heart of a rebuilding project. Increased productivity will facilitate an increase in exports while decreasing the imports on basic commodities like food and medicines. Finding economic stability is also detrimental to which path Pakistan’s politics will take in the future as the shadow of military rule looms large on the dwindling democratic set up which has managed to keep it in the barracks since 2008.

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What Is Stopping Economic Development Across The Free World?



Notice the big events of economic booms during the last century and observe the unique role of mobilization of entrepreneurialism on such trajectories. For example, the original Silicon Valley of the USA was not a technology or financial revolution but the mobilization of an entrepreneurial journey, way before the term ‘IT’ became popular, and ‘technology’ conceptualized as worthy enough to trade in billions while staying invisible. The out-of-box thinkers came out of their garages, broke old systems, created new alternates and changed the world forever. Revolution of entrepreneurs, created by entrepreneurs and for entrepreneurs. The rest is history

Today, some 100 other nations are still trying hard with their own version to become the copycats. The existing lukewarm failures around the world on the replications of “silicon valley” of sorts, already speak volumes. Remember, only measured by entrepreneurialism, such goals, unless once Mindset Hypotheses properly understood this entire subject already beyond common narratives on economic growth.

Real economic development always needs methodical advancements of national mobilization of entrepreneurialism, upskilling and uplifting SME sectors to quadruple exportability otherwise, growth and productivity remain stagnant.  The big challenges are to bring the entrepreneurial thinking and job creator mindsets blend across the economic development teams on a fast track basis. Their current frame of mind critically needs uplifting so their confidence level stands up to the global quality, demands for speed and execution able to tackle the power of global competitive forces.  

Neither across the world, during the entire last decade, did academia build neither the long awaited Fourth Industrial Revolution nor did the bureaucracies digitized, mobilized and uplifted SME economies. Where is the entrepreneurial mix in all such equations? What have the economic development teams really learned recently?  When will they get ready to advance their thinking and blend their efforts alongside the entrepreneurial engines and right mindsets?

When 100 plus nations, talking about digitization, are still trying to figure out mobilization of large sectors of their SME economies, with little or no progress, lingering questions arise. Necessitated now, are some newly mandated activities at every stage of any economic development in progress. Identify and rearrange right mindsets, for right challenges. What worked, last many decades, today, with no results, now ready for thrown out of windows? How long unlimited printing of currencies last, how high will inflation go and how long the recessions last?

The post-pandemic technologically advanced world,  Best option is to balance mindsets and cause change, adjust to global age demands on productivity and performance, otherwise accept a diaper change, surrender to face frailty of life and limits of minds. It is not the absence of expertise that is a problem, it is the mindsets unable to recognize such expertise, in the first place.

The invisible switch: There is no political power unless there is a parallel economic power; after all, there cannot be any economic power without entrepreneurial job-creator-mindset power. Economies without digitization are as if without electricity, economic development without upskilled frontline teams as if without a bulb. Study the solutions via Mindset Hypothesis

The 4B factor: Four Billion on the march; billion displaced due to pandemic, billion replaced due to technology, billion misplaced in wrong jobs now a billion on starvation-watch. The 4B Factor, this digitally connected mass of people making this now the biggest force of global opinion in the history of time.

Global opinion v/s national public opinion: Observe, how fast the world changed, how the ocean of global opinion is now drowning ponds of national opinion. Notice, nations are already so intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. Study the global tidal waves.

Study the Agrarian Age to Industrial Age, later to Computer Age, measure how most talented ‘cow-hands’ were suddenly replaced by steam power and hydraulics and later floors filled with clerks replaced by a single computer. Study “How did we arrive here so suddenly” Excerpted Source: Naseem Javed, Sunrise, Day One, Year 2000. Published, IABC Communications World, Dec. 1995, Volume 12 Issue 11, Article, ‘Chronology Charts’

Over centuries, despite, available like an open book, the government failed to create armies of entrepreneurs but was always successful in creating real armies and real combat soldiers. Simply because, soldiers trained by sleeping in the forests while digging trenches in the rain, but not trained by running around in classrooms with water pistols or drawing pictures of tanks. 

Entrepreneurialism is neither academia born nor academic centric. Let the professors teaching entrepreneurialism break the furniture in protest, their contributions, as theories are excellent only when free, but not for heavy cost and creating student debts. Today business education is more a liability and no longer a real asset. The world changed, minds opened, old-systems closing, new worlds arising with new definitions erupting to manage the future better.

Go build an airline, place aeronautical engineers, and frequent flyers in the cockpits but leave qualified trained pilots in the airport lobbies. Now glued to the radio to find about a crash understand the similarity to current pending financial crashes, nation by nation. As a test, best check out what percentage of entrepreneurial job creator mindsets are in the mix with job seeker mindsets of any local, national economic ministry anywhere in the free world.

Save economies and grab the solutions: They can rapidly upgrade and acquire Mastery on National Mobilization of Entrepreneurialism,learn its pragmatism and common sense deployments within months, acquire digitization, mobilization and most importantly to articulate on such advanced new thinking across the national agenda. Learn fast, fail fast, raise fast and shine. Study how Expothon is tabling such ideas globally. 

Today, a shipload of some 7000 economic development officers, representingalmostthe total of top teams spread across free economies of the world should now take a luxury cruise, relax, relearn, unlearn, as their current mathematics is causing serious maladjustments on creating grassroots prosperity for some 100 nations. How fast can this force of 7000 people on a luxury cruise be upskilled on National Mobilization of SME Entrepreneurialism?

The difficult questions: How quickly options when infused with technology lead to mobilizations to discover new paths. Which economic leadership of free nations can display such transformation or even articulate on such critical topics? Which national or global institution is bold enough to face and debate such challenges? Which economic team is ready to test, explore, or try on such forbidden topics? Nevertheless, the world changing fast and will not stop for anyone.

Observing the change, it will not be the sudden arrival of missed Fourth Industrial Revolution; but the surprised arrival of the First Industrial Revolution of the Mind. Study deeply how the mind is opening up and responding to creative entrepreneurial issues, the old concept already dead, now replaced with new thinking. Leaving behind the woman entrepreneurs is another tragedy for any nation. What are some new solutions

Just like today, we no longer tolerate square wheels or rotary dials, or chasing a form stamped 10 times, across a 10-floor building without a lift. The post pandemic economic recovery in smoke and mirror war games, will no longer tolerate the inefficiencies and bureaucracies. Of course, today, the ability to face the truth now considered extraordinary strength. Change can be beautiful, once minds opened.

Refusing to face the truth; this is where all the hostility and hate breeds,  and where without diversity and tolerance, wars and fakery declared the common games, this is when humankind left as secondary, common good declared waste, societies destroyed, so who needs economic development, anyway? A new wave of grassroots economic development will emerge as the top-level economic development almost already destroyed. Hear the sounds of distant firings. It will be the five billion connected alpha dreamers, who will develop and change the world. The rest is easy 

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The first Africa-Caribbean Trade and Investment Forum Comes On 1-3 September at Barbados



With the new dawn gradually unfolding, African financial institutions such as the African Export-Import Bank (Afreximbank) are making tremendous efforts and offering support for African leaders in consolidating Africa’s economy within the framework of the African Union Agenda 2063. They have consistently been pushing to transform agriculture as the safest approach to reduce imports and insure food security, improve industrialization and the raise the efficiency of human resource capital in Africa.

The Government of the Republic of Barbados will be hosting the first ever edition of the AfriCaribbean Trade and Investment Forum (ACTIF) which is being convened by African Export-Import Bank (Afreximbank) and Government of Barbados in collaboration with African Union Commission (AUC), African Continental Free Trade Area (AfCFTA) Secretariat, Africa Business Council, the Caribbean Community Secretariat, and Caribbean Export Development Agency. 

The African and Caribbean ties are deep rooted and based on shared history, culture, and sense of a common identity and destiny that was forged by the slave trade creating large centres of African Diaspora in the Caribbean and elsewhere. While Africa and the Caribbean have renewed their engagement, with a Heads of State and Government Summit of the Caribbean Community and Africa, held on 7 September 2021, the relationship needs to be institutionalized through deepening of trade and investment ties between the two regions.

The holding of the inaugural Africa-Caribbean Trade and Investment Forum is, therefore, a key strategic deliverable towards the institutionalisation of the reborn relationship between Africa and the Caribbean. This Forum will further consolidate the political agreement reached by Heads of State and Government of the Caribbean Community and which aims to strengthen collaboration, unity and to foster increased trade, investment and people-to-people engagement between the two regions.

It is in this context that the inaugural Africa Caribbean Trade and Investment Forum (ACTIF), has been organized to hold during 1-3 September at Bridgetown, Barbados. The Forum dubbed: AfriCaribbean Trade and Investment Forum 2022, will hold under the theme “One People, One Destiny. Uniting and Reimagining Our Future” vividly reflecting the common cultural aspirations. 

The main goal of the AfriCaribbean Trade and Investment Forum is to provide a platform for the development of strategic partnerships between the business communities in Africa and the CARICOM Region with the objective of fostering bilateral cooperation and engagement in trade, investment, technology transfer, innovation, tourism, culture and other services. The Forum will also be used as a vehicle to actively promote trade and investment opportunities among people of Africa and the Caribbean, as well as the wider diaspora which will contribute to the implementation of the African Continental Free Trade Agreement (AfCFTA) and to the Caribbean trade development agenda.

Africa leaders and its people highly appreciate the readiness of external countries, who in practical terms, engage in infrastructure development, agriculture and industry especially at the dawn of the rapid geopolitical changes possibly leading to creating a new global economic order. Noting the significance, a number of countries are simultaneously trying to understand barriers in the region and are steadily exploring ways to leverage unto the newly created AfCFTA which provides a unique and valuable platform for businesses to access an integrated African market of over 1.3 billion people in Africa.

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