Asian Monetary Fund feasible due to new global realities

Asia’s rise and the West’s decline set the stage for an alternative global financial order, say economists.

PETALING JAYA: The establishment of an Asian Monetary Fund (AMF) is now feasible due to a tectonic shift in global realities that has created optimism over an alternative non-US-led global financial order, say economists.

Monash University Malaysia economics professor Niaz Asadullah said the “Asian Century” is the talk of the town today.

“The contrasting fortunes and new global realities have created much optimism over an alternative (international) financial order,” Niaz told FMT Business.

“There is a visible shift in the epicentre of the global economy from the North Atlantic towards East Asia, and the fast post-pandemic recovery of Asian emerging markets vis-a-vis contracting western economies.”

He was commenting on the call by Prime Minister Anwar Ibrahim to set up an Asian Monetary Fund, akin to the International Monetary Fund (IMF), during his official visit to China last week.

Anwar said China is open to talks with Malaysia on forming the AMF, amid the world’s growing impatience with the US dollar’s dominance. “There is no reason for Malaysia to continue depending on the dollar,” he said.

A new financial world order?

Founded at the Bretton Woods conference in 1944 at the end of World War II, the IMF and World Bank Group are two central institutions that underpin the US’ dominance in the global financial system.

The World Bank works with developing countries to reduce poverty and increase shared prosperity, while the IMF serves to stabilise the international monetary system and acts as “monitor of the world’s currencies”.

However, critics claim the IMF and the World Bank are institutions that operate at the behest of the US that seeks to maintain its hegemonic position as the world’s sole superpower, both militarily, and financially via the US dollar.

There is growing unease around the world that the US is abusing its predominant position by imposing unilateral sanctions on its adversaries like Russia, China, Iran and Venezuela. Case in point is the seizing of Russia’s foreign currency reserves in the wake of the Russo-Ukrainian war early last year.

Niaz pointed out that Anwar’s proposal is not new as he made a similar call during his first stint as finance minister in the 1990s.

“The AMF was first proposed by the Japanese to facilitate quick recovery from the Asian financial crisis, but given the US political hegemony and control over the IMF, the proposal did not materialise then.

“This time it’s different, and a lot has changed in the last 25 years. The power rivalry between China and the US has undermined the US’ vision of a unipolar world,” he said.

He said compared to the US in the 1990s, China today enjoys much stronger trade ties with the Asean economies. Unlike the IMF or the US, “China doesn’t impose harsh conditionalities for lending purposes”.

“Anwar is keen to leverage these emerging tectonic shifts in regional power configurations.

“He seems convinced that this time round, the major Asian nations will overcome the problem of dealing with US pressure, and form a pan-Asian political coalition in support of the AMF.”

Essential to get Asian governments’ buy-in

Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams concurs that an Asian Monetary Fund can be established.

“It requires buy-in from many Asian countries, particularly to finance it and then to agree on the terms on which access to that finance is made available.

“It is not just a financial issue but a geopolitical issue, too,” he said.

Another related issue is the increasing use of bilateral currencies to finance trade and investment between countries rather than using the US dollar as the primary trade currency.

“This is also feasible and is becoming increasingly popular as changes in such arrangements are showing,” Williams said, adding that most commodities are priced and traded in US dollars.

However, the direct sale of oil between Russia and China, as well as India, is circumventing that arrangement as these countries ditch the use of the greenback. Even Malaysia is exploring the possibility of trade with other nations via their respective currencies.

“There is an increasing probability that this will extend to more countries and more commodities,” he said.

Lastly, the geopolitical implications of an Asian Monetary Fund and how it will affect relationships between countries like Malaysia, the US and its allies have wide implications.

“Many countries are questioning whether the dollar’s dominance is beneficial to them, and whether better exchange arrangements could be found,” Williams said.

“New arrangements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which now includes the UK, show there are shifts in global economic arrangements which do not necessarily rely on the US or other developed economies like the European Union.”

Not a done deal

However, Universiti Malaya economics professor Nazari Ismail begs to differ, stating that the establishment of the AMF is unlikely in the near future.

“There is no currency at the moment that is in a position to replace the US dollar as the world’s reserve currency,” Nazari said, adding that even China keeps its international reserves in dollars.

Pacific Research Center of Malaysia principal adviser Oh Ei Sun said the setting up of an AMF is a realistic possibility, and can start with converting the tremendous Malaysia-China trade volume into a renminbi-denominated one.

“It can happen provided one pre-condition is met – that the renminbi can be freely traded internationally whenever supply and demand dictates, especially into and out of China.

“Otherwise, traders would still prefer the free-flowing US dollar,” he said.  FMT

Authored by Michael Snyder via The Economic Collapse blog,

For decades, the U.S. dollar was the undisputed king of global currencies, but now dramatic changes are happening.  China, Russia, India, Brazil, Saudi Arabia and other nations are making really big moves which will enable them to become much less dependent on the U.S. dollar in the years ahead.  This is really bad news for us, because having the primary reserve currency of the world has enabled us to enjoy a massively inflated standard of living.  Once we lose that status, our lifestyles will be much different than they are today.  Unfortunately, most Americans don’t understand any of this.  Even though our leaders have treated the stability of our currency with utter contempt in recent years, most Americans just assume that the dollar will always reign supreme.  Meanwhile, much of the planet is preparing for a future in which the U.S. dollar will be far less important than it is right now.

#1 The BRICS nations account for over 40 percent of the total global population and close to one-fourth of global GDP.  So the fact that they are working to develop a “new currency” should greatly concern all of us…

The Deputy Chairman of Russia’s State Duma, Alexander Babakov, said on 30 March that the BRICS bloc of emerging economies – Brazil, Russia, India, China, and South Africa – is working on developing a “new currency” that will be presented at the organization’s upcoming summit in Durban.

“The transition to settlements in national currencies is the first step. The next one is to provide the circulation of digital or any other form of a fundamentally new currency in the nearest future. I think that at the BRICS [leaders’ summit], the readiness to realize this project will be announced, such works are underway,” Babakov said on the sidelines of the Russian-Indian Strategic Partnership for Development and Growth Business Forum.

Babakov also stated that a single currency could likely emerge within BRICS, and this would be pegged not just to the value of gold but also to “other groups of products, rare-earth elements, or soil.”

#2 Two of the BRICS nations, China and Brazil, have just “reached a deal to trade in their own currencies”

The Chinese renminbi is speeding up in expanding its global use, a trend that will help build a more resilient international monetary system, one that is less dependent on the US dollar and more conducive to trade growth, experts said on Thursday.

They commented after China and Brazil — two major emerging economies and BRICS members — reportedly reached a deal to trade in their own currencies, ditching the US dollar as an intermediary.

The deal will enable China and Brazil to conduct their massive trade and financial transactions directly, exchanging the RMB for reais and vice versa, instead of going through the dollar, Agence France-Presse reported on Wednesday, citing the Brazilian government.

#3 During a meeting last week in Indonesia, finance ministers from the ASEAN nations discussed ways “to reduce dependence on the US Dollar, Euro, Yen, and British Pound”

An official meeting of all ASEAN Finance Ministers and Central Bank Governors kicked off on Tuesday (March 28) in Indonesia. Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies.

The meeting discussed efforts to reduce dependence on major currencies through the Local Currency Transaction (LCT) scheme. This is an extension of the previous Local Currency Settlement (LCS) scheme that has already begun to be implemented between ASEAN members.

#4 In a move that has enormous implications for the “petrodollar”, Saudi Arabia just agreed to become a “dialogue partner in the Shanghai Cooperation Organization”

The state-owned Saudi Press Agency said that, in a session presided by King Salman bin Abdulaziz, the Saudi cabinet on Tuesday approved a memorandum awarding Riyadh the status of dialogue partner in the Shanghai Cooperation Organization — a political, security and trade alliance that lists China, Russia, India, Pakistan and four other central Asian nations as full members.

The organization further tallies four observer states — including Iran — and nine dialogue partners, counting in Saudi Arabia, Qatar and Turkey. It is headquartered in Beijing and served by China’s Zhang Ming as secretary-general.

#5 The Chinese just completed their very first trade of liquefied natural gas that was settled in Chinese currency instead of U.S. dollars…

China has just completed its first trade of liquefied natural gas (LNG) settled in yuan, the Shanghai Petroleum and Natural Gas Exchange said on Tuesday.

Chinese state oil and gas giant CNOOC and TotalEnergies completed the first LNG trade on the exchange with settlement in the Chinese currency, the exchange said in a statement carried by Reuters.

The trade involved around 65,000 tons of LNG imported from the United Arab Emirates (UAE), the Shanghai Petroleum and Natural Gas Exchange added.

#6 The government of India is offering their currency as an “alternative” to the U.S. dollar in international trade…

India will offer its currency as an alternative for trade to countries that are facing a shortage of dollars in the wake of the sharpest tightening in monetary policy by the US Federal Reserve in decades.

Facilitating the rupee trade for countries facing currency risk will help “disaster proof” them, Commerce Secretary Sunil Barthwal said during an announcement on India’s foreign trade policy Friday in New Delhi.

#7 Saudi Arabia has actually agreed to accept Kenyan shillings as payment for oil shipments to Kenya instead of U.S. dollars…

Kenyan President William Ruto signed an agreement with Saudi Arabia to buy oil for Kenyan shillings instead of US dollars.

As the US currency exchange rate hit 145.5 shillings due to increased demand by importers, President Ruto accused oil cartels of stockpiling American dollars in response to the crisis, sparking fuel shortages throughout Kenya.

10 years ago, none of these things would have happened.

But now change is happening at a pace that is absolutely breathtaking.

At this point, John Carney is warning that a fracturing of global currency reserves is “inevitable”…

“[It’s] not only a serious threat, I think it is inevitable. We went through three stages, as you said, after World War II. The U.S. was the biggest economy in the world. In the 1970s, global banking became basically dollar central. With the fall of the Soviet Union, the entire world, more or less, came under the domination of the U.S dollar…”

“That is now drifting away. China and Russia are starting to build an alternative block of currency,” John Carney explained Sunday.

Sadly, I agree with him.

As U.S. relations with both Russia and China continue to go downhill, both of those nations will have a very strong incentive to push de-dollarization even further.

And that is really bad news for the United States, because our currency is the source of our economic power and it is the most important thing that we export.

This is a story of monumental importance, but unfortunately most Americans still believe that our leaders know exactly what they are doing and that they have everything fully under control. ZERO HEDGE