US dollar seminar held in Beijing

Since the outbreak of COVID-19, the monetary and fiscal policies of the United States are showing a tendency toward extremes, which has caused a considerable impact on the international status of the US dollar. On Oct 24, the seminar "US Dollar Dynamics in the Evolving Global Environment" was successfully held, sponsored by the Chongyang Institute for Financial Studies at Renmin University of China, and Contemporary International Relations, organized by the Sino-US People-to-People Exchange Research Center and operated by the university. More than a dozen relevant experts and scholars attended and launched a heated discussion.

The seminar was chaired by Wang Wen, executive dean and executive director of the university’s Sino-US People-to-People Exchange Center. He said after the outbreak of COVID-19, the United States adopted a series of fiscal stimulus policies to support economic recovery. Although these policies stabilized the financial market and economic situation in the United States in the short term, they overdrew the potential of future development and undermined the foundation of the US dollar as the center of the global monetary system. How China should deal with the increasingly de-dollarized global financial system and gradually promote the internationalization of RMB in the context of the declining US dollar are fields where relevant scholars need to conduct in-depth research.

Liu Yuanchun, vice president of Renmin University of China, said in the opening speech: “At present, the second outbreak of COVID-19 and the US presidential election resulted in increased uncertainty. Therefore, we should study relevant issues in-depth and think about the impact of the future development trend of the US dollar on the internationalization of RMB, and put forward a corresponding currency strategy.”

Fu Mengzi, vice president of the China Institutes of Contemporary International Relations, said in the opening speech: “‘Zombie Enterprise’, ‘Financial Zombification’, ‘Economic Zombification’ — those critical factors belong to financial governance. Today, the world is going through changes, and the pandemic has brought about new changes and accelerated existing ones.

Jin Zhongxia, executive director for China at the International Monetary Fund, said in a keynote speech there are many challenges in the world. First, the second outbreak of the pandemic and the presidential election may affect the economic outlook of the United States, and uncertainties are also on the rise. On the one hand, the epidemic has hit the economy in the United States. Even so, the US dollar is likely to remain dominant for quite some time and it remains to be seen how it will be materially affected by the uncertainty.

Grzegorz W. Kolodko, Poland's former deputy prime minister and finance minister, said: “China needs to vigorously develop technology creative ability, maintaining the global economic order, and push forward the Belt and Road Initiative. These factors are the foundation of the sustainable development of China's economy and RMB internationalization.”

Subsequently, Renmin’s Jia Jinjing, assistant dean, and Cui Yizhe, assistant researcher, on behalf of the research group released the report “US Dollar Research Report Issue No.1: An Assessment of the Potential Monetary Crisis of the US Dollar During the COVID-19 Pandemic”. Since the outbreak of COVID-19 in 2020, the Federal Reserve quickly lowered the interest rate to 0-0.25 percent, which led to a rapid increase in the Federal Reserve's balance sheet and the US national debt to $27 trillion. However, the policies of the US government and the Federal Reserve can only delay the crisis, and it is likely to be caught in the "Financial Zombification" problem.

In the panel discussion section, several scholars shared their views and had an in-depth discussion on the topic of "US Dollar Dynamics in the Evolving Global Environment ".

In the seminar, Wei Benhua, Deputy Director of the State Administration of Foreign Exchange, pointed out the US relies on the national deficit to support the economy. It is a "dead cycle", and the government relies on printing money. However, if the economy of the United States cannot revive, it will damage the debt sustainability of the United States.

Bian Weihong, director and researcher at the Bank of China Research Institute, discussed the issue from a long-term perspective. In a prosperous environment, rapid economic growth and optimistic social expectations led to high-risk trends and accumulate a large number of debt bubbles. Thus, the gap between the rich and the poor is widened, triggering the debt crisis. At this time, the central bank had to print more money to save the economy, entering a new cycle of debt restructuring.

Liao Qun, chief economist at China Citic Bank International, said the US debt problem is reflected in two aspects: First, the total amount of debt is very large, which makes it difficult to solve the problem; Second, the United States not only has a large amount of debt but also its debt structure and the nature of debt are riskier.

Liu Zhiqin, senior fellow at the Chongyang Institute for Financial Studies of Renmin University of China, said the current dilemma taught new lessons, adding the disease ALS, characterized by muscle weakness, difficulty breathing and fatigue, is similar to the economy the United States.

Tu Yonghong, deputy director of the International Monetary Institute at Renmin University of China, emphasized rising debt is not occurring in the United States alone and is a global problem. The world is in a phenomenon of low growth, not only in terms of economic growth, but also in terms of trade, investment, profits and population. Despite this, the US dollar is still strong, and the status of the US dollar has strengthened because of the pandemic. Thus, we can expect the US dollar will remain the most important currency for a long time to come.

The seminar was hosted by Liu Ying, director of the cooperative research department at Chongyang Institute for Financial Studies, Renmin University of China.

(The original report from: Wang Wen, Jia Jinjing, Cui Yizhe: "U.S. "Financial Zombification" and Its Evolutionary Trends", in "Contemporary International Relations", Issue 9, 2020)