Author: Consultant

As US-­China rivalry and Chinese assertiveness heighten tensions in the Asia­-Pacific, countries are engaging in an arms race to secure their borders. But ramping up defence spending can increase the risk of conflicts.

As China flexes its muscles, East Asian neighbours ramp up defences

In March, Japan opened a new army camp on the tropical resort island of Ishigaki – about 330km east of Taiwan – staffed with 570 soldiers and stocked with an arsenal of anti-ship and surface-to-air missiles.

The new garrison, which defence officials describe as the “crucial final component of Japan’s front-line security”, follows other Ground Self-Defence Force camps that have opened since 2016 on the south-western Japan islands of Yonaguni, Miyako and Amami Oshima.

This is on top of the longstanding – and outsized – military presence of security ally United States on Okinawa, which hosts 70 per cent of all US bases in Japan and nearly 30,000 active-duty military personnel.

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South-east Asia plays catch-up with China’s military might

Philippine President Ferdinand Marcos Jr gave a thumbs-up for the cameras from the backseat of an FA-50 fighter jet just before it took off from Clark Air Base in Pampanga, south of the capital Manila, on March 7.

The aircraft carrying the commander-in-chief flew west over a military training area near Zambales, a coastal province facing the South China Sea. Mr Marcos would return to base minutes later, impressed by the pilot’s skills and even more convinced that modernising the military is key to counter Beijing’s rising aggression in the disputed waters.

“The modernisation of the Air Force, of the Armed Forces of the Philippines, is certainly a response to the growing complication of the situation that we are facing in the region,” Mr Marcos would later say in another speech before the military at the same air base on March 31.

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Rising risk of arms races in Asia spiralling into major conflict

Arms races can sometimes be stabilising. The United States and the Soviet Union built massive nuclear arsenals during the Cold War. Yet, the risk of mutual annihilation these created ultimately stopped Moscow and Washington from crossing the Rubicon – notwithstanding some very close calls along the way, such as the Cuban missile crisis of 1962.

But arms races more often precede major conflict. The classic example here is the Anglo-German contest for naval supremacy at the start of the 20th century, which helped spark World War I.

Arms racing, by definition, involves intense bilateral military build-ups that are both rapid and reciprocal. The numerous such contests currently unfolding across Asia appear to be of the historically more combustible kind.

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In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon suggested that the U.S. government and climate conscious corporations may have to seize citizen’s private property to enact climate initiatives while there still time to stave off climate disasters.

Dimon declared Tuesday that “governments, businesses and non-governmental organizations” may need to invoke “eminent domain” in order to get the “adequate investments fast enough for grid, solar, wind and pipeline initiatives.”

“Eminent domain” is a legal term that describes the government using its power to expropriate private property for public use, provided the government provides private owners proper compensation.

JPMorgan CEO suggests government seize private property to quicken climate initiatives | Fox News

The number of Americans filing new claims for unemployment benefits fell last week, but annual revisions to the data showed applications were higher this year than initially thought, further evidence that the labour market was slowing.

With Thursday’s weekly jobless claims report, the Labor Department updated the methodology used to seasonally adjust the initial claims and the so-called continued claims data. Prior to the COVID-19 pandemic, the unemployment insurance claims series used multiplicative factors to seasonally adjust the data.

Beginning in March 2020 that was changed to additive factors, before switching back to multiplicative models as the large effects of the pandemic on the claims series lessened.

“For consistency, the published seasonal factors are presented as multiplicative with additive factors converted to implicit multiplicative factors and will not be subject to revision,” the department said in a statement. “Now that the pandemic impacts on the UI claims series are clearer, modifications have been made to the outlier sets in the seasonal adjustment models for both of the claims series.”

It said this approach had resulted in larger-than-usual revisions during many weeks over the last five years.

Initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 228,000 for the week ended April 1. Data for the prior week was revised to show 48,000 more applications received than previously reported.

Economists polled by Reuters had forecast 200,000 claims for the latest week. The government revised the claims data from 2018 through 2022.

It introduced new seasonal factors for 2023 and revised factors for 2018 through 2022. But it added that, “the most volatile economic period of the pandemic, including the period running from March 2020 to June 2021, was not revised and will continue to be based on additive adjustments.”

Economists had viewed pandemic-related distortions to seasonal factors as one of several factors keeping claims low despite high-profile layoffs in the technology industry and some sectors particularly sensitive to interest rates. Employers have generally been reluctant to send workers home after struggling to find labour following the COVID-19 pandemic.

“The good news is there are no additional job layoffs after the banking panic hit in early March, but the bad news is the labour market was starting to unravel from the strongest in history even before the bank crisis,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Today’s jobless claims data are an additional sign that the labour market is slowing.”

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury yields were mixed.

The labour market is expected to loosen up in the second quarter as companies respond more to slowing demand triggered by the Federal Reserve’s interest rate increases.

Credit conditions have also tightened following the recent failure of two regional banks, which could make it harder for small businesses and households to access funding.

Small businesses, like restaurants and bars, have been the main drivers of job growth. Surveys from the Institute for Supply Management this week suggested that the labour market was fraying at the edges.

The Labor Department reported on Tuesday that job openings fell below 10 million at the end of February for first time in nearly two years. Still, there were 1.7 job openings for every unemployed person in February, which is making it easier for some laid-off workers to quickly find employment.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 6,000 to 1.823 million during the week ending March 25, the claims report showed.

The claims data has no bearing on March’s employment report, which is scheduled to be released on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 239,000 jobs in March after rising by 311,000 in February. The unemployment rate is forecast to be unchanged at 3.6 per cent.

Cooling labour market conditions could allow the Fed to halt its fastest interest rate hiking cycle since the 1980s.

The U.S. central bank last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further rate hikes due to financial market turmoil. The Fed has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75 per cent-5.00 per cent range.

Signs that the labour market was losing speed were underscored by a separate report on Thursday from global outplacement firm Challenger, Gray & Christmas that showed U.S.-based employers announced 89,703 job cuts in March, up 15 per cent from February. Layoffs jumped 319 per cent on a year-on-year basis last month and were concentrated in the technology industry.

Layoffs this year have been blamed on a range of factors, including market or economic conditions, cost-cutting, store or department closures as well as financial loss. Businesses also have had little desire to add workers.

“With rate hikes continuing and companies reigning in costs, the large-scale layoffs we are seeing will likely continue,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas.

PUBLISHED THU, APR 6 20231:50 AM EDTUPDATED AN HOUR AGO

Oil prices were little changed on Thursday but posted a third weekly gain as markets weighed further production cuts targeted by OPEC+ and falling U.S. oil inventories against fears about the global economic outlook.

Brent crude settled down 13 cents, or 0.2%, at $84.86 a barrel. West Texas Intermediate U.S. crude closed 14 cents, or 0.2%, lower at $80.47. There will be no trading on the Good Friday holiday.

Both benchmarks jumped more than 6% this week after OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, surprised the market on Sunday with a pledge of production cuts.

Hedge funds have bought crude all week, moving from the sidelines back into “risk on” mode, said Dennis Kissler, senior vice president of trading at BOK Financial.

Prices drew support from a steeper-than-expected drop and a second consecutive weekly drawdown in U.S. crude inventories last week. Gasoline and distillate inventories also declined, hinting at rising demand.

U.S. energy firms this week also cut the number of oil rigs for a second week in a row. The rig count, an early indicator of future output, dropped two to 590 this week, Baker Hughes data showed.

Limiting gains, however, U.S. labor market data pointed to slowing economic growth, and there was also slower-than-expected growth in the U.S. services sector.

“Demand destruction as function of the threat of recession is greater than the cut by OPEC+,” said Robert Yawger, said director of energy futures at Mizuho Securities.

Buyers of put options that hedge downside risk were more active than buyers of call options, which bets on rising prices, implying traders were worried prices could fall, Yawger added.

“The oil market’s bullish momentum may have paused, but upside potential remains given the tightening supply backdrop,” said Stephen Brennock of oil broker PVM.

Major U.S. stock indexes ended higher on Thursday, helped by a rally in Alphabet shares as investors, worried about a slowing economy, looked to upcoming jobs data. Canada’s main stock index also edged higher, adding to its weekly gain, as most major sectors advanced and domestic data showed the economy adding more jobs than expected last month.

Alphabet Inc rallied 3.8% and Microsoft climbed 2.6%, with both providing more fuel than any other stocks for the S&P 500′s gain for the session. Alphabet’s Google unit plans to add artificial intelligence features to its search engine, the Wall Street Journal reported.

Adding to recent data hinting at a weak labour market, U.S. initial jobless claims fell to a seasonally adjusted 228,000 for the week ended April 1, versus expectations of 200,000 claims.

The Labor Department’s data from the prior week was revised to show 48,000 more applications were received.

Wall Street has lost ground in recent days in response to signs of a slowing economy, including weak data on private payrolls and job openings earlier this week.

That marked a change from recent months, when investors cheered weak economic data on the basis that it might mean the Fed’s interest rate hikes were working and that the Fed could ease up on its campaign to rein in decades-high inflation.

Interest rate futures imply traders are divided about whether the Fed will raise its target rate or keep it steady at its upcoming May meeting, according to CME Group’s Fedwatch tool.

“The market is trying to decide whether the ‘growth and recession’ scare or the ‘Fed hiking’ scare are more meaningful to prices, and so it’s waffling between whether a softening labor market is good news because it gets the Fed to pause in May or bad news because it means the recession is actually coming,” said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky.

Investors are now focused on the more comprehensive report on non-farm payrolls, which are expected to have increased by 239,000 in March, down from the 311,000 jobs added in the prior month. That report is due on Friday, when the U.S. and Canadian stock markets will be closed for the Good Friday holiday.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 37.14 points, or 0.2%, at 20,196.69, preliminary data showed. For the week, it was up 5%, its third straight weekly advance.

The Canadian economy added 35,000 jobs in March and the unemployment rate remained near a record low, a sign of economic resilience ahead of a central bank policy meeting next week.

Nine of the TSX’s 10 major sectors gained ground, including a gain of 0.7% for consumer staples rose, while industrials ended 0.6% higher.

Energy gave back some of its weekly gain, falling 0.7%. It was boosted earlier in the week by a jump in oil prices after major producers cut their output target.

The S&P 500 climbed 0.36% to end the session at 4,105.02 points.

The Nasdaq gained 0.76% to 12,087.96 points, while the Dow Jones Industrial Average rose 0.01% to 33,485.29 points.

Of the 11 S&P 500 sector indexes, eight rose, led by communication services, up 1.71%, followed by a 0.74% gain in utilities.

With some investors away during a shortened holiday week, volume on U.S. exchanges was relatively light, with 9 billion shares traded, compared to an average of 12.7 billion shares over the previous 20 sessions.

For the week, the S&P 500 declined 0.1%, the Dow added 0.6% and the Nasdaq lost 1.1%.

In Thursday’s trading, Caterpillar, viewed as a bellwether for the industrial sector, dipped 2%, bringing its loss over the past three days to 9% as investors fretted about a potential economic downturn.

AMC Entertainment Holdings Inc surged 21% after a U.S. court denied the theater operator’s request to lift a status quo order necessary for its plan to convert preferred shares to common shares.

Levi Strauss & Co tumbled 16% after the apparel maker posted a fall in quarterly profit.

Big banks including JPMorgan Chase & Co and Citigroup will be among companies kicking off the quarterly reporting season next week, with investors eager for updates on the health of the sector after a recent banking crisis.

Analysts on average expect aggregate S&P 500 company earnings for the first quarter to have fallen 5% year-over-year, according to Refinitiv I/B/E/S.

Advancing issues outnumbered falling ones within the S&P 500 by a 1.2-to-one ratio.The S&P 500 posted six new highs and no new lows; the Nasdaq recorded 46 new highs and 177 new lows.

Reuters, Globe staff

KUALA LUMPUR, MALAYSIA — Prime Minister Anwar Ibrahim said Monday that Malaysia was prepared to negotiate the South China Sea dispute with Beijing to safeguard the country’s energy exploration efforts.

China claims sovereignty over almost the entire South China Sea — a strategic waterway through which trillions of dollars in trade pass annually — despite an international court ruling that Beijing’s assertion has no legal basis.

The Philippines, Vietnam, Malaysia and Brunei all have overlapping claims in the sea, while the United States sends naval vessels through it to assert freedom of navigation in international waters.

Anwar — who was on a visit to Beijing recently — said the “sensitive” issue was raised at a meeting with Chinese President Xi Jinping as Malaysia’s state energy firm Petronas has its largest oil platform in the disputed area, as well as several exploration projects.

“I said, as a small country we need the resources, (like) oil and gas, we have to continue (exploration projects),” Anwar said during a monthly speech to staff at the Prime Minister’s Office.

“But if the condition is that there must be negotiations, then we are ready to negotiate.”

The premier did not provide further details on the conversation with Xi.

While asserting their claims in the South China Sea, Chinese authorities in recent years have ramped up its development of artificial islands, including outfitting some with military facilities and runways.

Regional nations have also accused Chinese vessels of harassing their fishing boats.

In 2021, Malaysia summoned Beijing’s envoy to the Southeast Asian country in protest after Chinese vessels entered its maritime economic zone in the disputed sea.

Earlier that year, it scrambled fighter jets to intercept 16 Chinese military aircraft that appeared off Borneo over the South China Sea.

— AFP

MONTREAL, CANADA — Canada announced Tuesday it has opened an investigation into the US-based software firm behind ChatGPT, the buzzy artificial intelligence chatbot.

The investigation by the Office of the Privacy Commissioner into OpenAI was opened in response to a “complaint alleging the collection, use and disclosure of personal information without consent,” the agency said.

Launched in November, OpenAI’s chatbot uses information available online to provide detailed answers to users’ queries.

ChatGPT caused a global sensation when it was released last year for its ability to generate essays, songs, exams and even news articles from brief prompts.

But critics have long fretted that it was unclear where ChatGPT and its competitors got their data or how they processed it.

“We need to keep up with –- and stay ahead of -– fast-moving technological advances, and that is one of my key focus areas,” said Canadian privacy commissioner Philippe Dufresne.

With funding from tech giant Microsoft, which has already added the tool to several of its services, ChatGPT is sometimes touted as a potential competitor to Google’s search engine.

The move by Canada’s regulator comes amid growing calls for stepped up scrutiny of AI-powered technology.

Last week, billionaire Elon Musk — a founder of OpenAI but no longer a member of the board — and hundreds of global experts called for a six-month pause in research on AI systems more powerful than GPT-4, the latest iteration of the software on which ChatGPT is based, citing “profound risks to society and humanity.”

Italy on Friday also became the first country in the Western world to block ChatGPT over concerns about data use.

The European police agency Europol recently warned that criminals are poised to take advantage of artificial intelligence like conversational bots to commit fraud and other cybercrimes.

— AFP

WASHINGTON: India has developed a world-class digital public infrastructure (DPI) to support its sustainable development goals with its journey having lessons for other countries embarking on their own digital transformation, IMF has said in a working paper, noting that digitalization has supported formalization of India’s economy and Aadhaar has helped in direct transfer of payments to beneficiaries while reducing leakages.

The working paper ‘Stacking up the Benefits Lessons from India’s Digital Journey” said that the government played a catalytic role, acting as an anchor client and establishing institutions to ensure continuity in India Stack’s operations.

It said that using this digital infrastructure, India was able to quickly provide support to an impressive share of poor households during the Covid-19 pandemic.

The paper said that using a digital backbone allowed India to scale its vaccine delivery quickly and overcome challenges such as large-scale internal migration. The technology underlying CoWIN, a digital platform developed by India to capture the Covid-19 vaccination programme, has been deployed in Indonesia, Philippines, Sri Lanka and Jamaica to help facilitate their vaccination programmes.

The paper lauded Pradhan Mantri Jan Dhan Yojana (PMJDY) launched by the Narendra Modi government and said sound policies led to a competitive, open, and affordable telecommunications market and lowering of cost of mobile data by 90 percent lead to a jump in data usage.

The paper said that demonetization led to greater use of other forms of payment, including the UPI.

It said Aadhaar helped facilitate the transfer of social safety net payments directly from the government treasury’s accounts to beneficiaries’ bank accounts, helping to reduce leakages, curb corruption and providing a tool to effectively reach households to increase coverage.

“The Government of India estimates that, up to March 2021, about 1.1 percent of GDP in expenditure was saved due to the digital infrastructure and other governance reforms,” the paper said.

It said that using this digital infrastructure India was able to quickly provide support to an impressive share of poor households during the pandemic.

DPI refers to a set of shared digital building blocks, such as applications, systems, and platforms, powered by interoperable open standards or specifications. India Stack is the collective name of a set of commonly used DPIs in India; it consists of three different layers–unique identity (Aadhaar), complimentary payments systems (Unified Payments Interface, Aadhaar Payments Bridge, Aadhaar Enabled Payment Service), and data exchange (DigiLocker and Account Aggregator).

“Together they enable online, paperless, cashless, and privacy-respecting digital access to a variety of public and private services. The benefit of this investment is felt across the country and served India well during the pandemic,” the paper said.

It said that in the first months of the Covid-19 pandemic, about 87 per cent of poor households received at least one benefit.

“India Stack has been used as a platform to foster innovation and competition, expand markets, close gaps in financial inclusion, boost government revenue collection, and improve public expenditure efficiency.”

The paper said digital payments are now ubiquitous and UPI accounts for 68 percent of all payment transactions by volume.

“The use of digital payments has expanded the customer base of smaller merchants, documenting their cash flow and improving access to finance. Roughly 4.5 million individuals and companies have benefited from easier access to financial services through the Account Aggregator, since it was first launched in August 2021, and adoption is increasing rapidly,” the paper said.

It said digitalization has also supported formalization of the economy, with around 8.8 million new taxpayers registered for the GST between July 2017 and March 2022, “contributing to buoyant government revenues in recent years”.

“Government service provision is streamlined; for example, citizens can access documents issued by state and central government through one platform. Similarly, the India Stack has digitized and simplified Know Your Customer procedures, lowering costs; banks that use e-KYC lowered their cost of compliance from $12 to 6 cents. The decrease in costs made lower income clients more attractive to service and generated profits to develop new products,” the paper said.

“India’s journey highlights lessons for other countries embarking on their own digital transformation. India Stack’s development is guided by a foundational building blocks approach, and a focus on supporting innovation across the ecosystem,” it added.

The IMF paper said that the building block approach involves unbundling the components of the solution to a set of problems and identifying a minimal common core.

“This modular approach fosters innovation, allowing solutions to be built to multiple problems based on the common core. For a large and diverse country such as India, a building block approach provides those closer to the problem with the basic tools to create tailored solutions.”

It said a focus on supporting a vibrant ecosystem implies the need for interoperability between the different DPIs and a competition-focused design.

“In India, interoperability was supported through open standards, allowing anyone to utilize the functionality provided by India Stack. These principles are applied to other DPIs in education and health, including the Covid-19 vaccine and distribution platform, CoWIN,” the paper said.

“The government played a catalytic role, acting as an anchor client and establishing institutions to ensure continuity in India Stack’s operations. DPI is an example of a two-sided market where the value of the platform increases for both participants as the numbers on each side increases.

“By using the DPI to provide social benefits, the government encouraged take up by individuals and gave service providers the comfort of access to a large client base. The government also promoted the use of technology as ‘utilities’ and created a category of not-for-profit companies with a public purpose (National Information Utilities),” the paper noted.

It said that National Payments Corporation of India, an initiative between the Reserve Bank of India and the Indian Banks Association, which unites and operates retail payments and settlement system, is an example of such a company.

“This is one strategy to strike a balance between curbing monopoly rents and providing these services effectively and efficiently, without the various human resources and procurement challenges that often plague large government projects. The tax administration also played a pioneering role in rolling out a tax ID (PAN) using an innovative PPP approach, from where important lessons were drawn to develop Aadhaar.”

The IMF paper said that a set of enabling policies in the financial and telecommunications sector also supported the uptake of India Stack.

“In 2014, there was a push by the government to provide access to a no-frills, low-cost bank account, that doubled the coverage of individuals with bank accounts. The scheme targeted the financially underserved, especially rural women. Under this initiative 462.5 million of bank accounts were opened in both urban as rural areas as of August 2022,” the paper said.

The paper said that in late 2016, India enacted a demonetization policy where large currency notes were invalidated.”

“While it was disruptive, demonetization led to greater use of other forms of payment, including the UPI. Sound policies, such as foreign investment liberalization and the prohibition of discriminatory data tariffs, led to a competitive, open, and affordable telecommunications market. The entry of a new network operator in 2016 lowered the cost of mobile data by 90 percent leading to a jump in data usage from 154 MB/month in 2015 to 15.8 GB/month in 2021.”

The paper said certain features of India’s journey would be difficult to replicate elsewhere, but these are not preconditions for success.

“The in-house development of Aadhaar, supported by systems integrators firms, was feasible in India due to the high level of capacity in IT within its domestic labour market. This allowed India to avoid vendor lock-in and lack of interoperability and created a need for sufficient resources and capacity to continue maintaining and developing the infrastructure.”

The IMF paper said that other countries have approached this challenge differently, including by using open-source software under the format of digital public goods shared between countries.

“These types of resource and knowledge-sharing initiatives mean that governments with shallower IT capacity can implement DPI. There are also features arising out of India’s specific context which may not be applicable for others. For example, to access the full functionality of India Stack, individuals need access to a smartphone and a bank account. For other countries with low adoption of smartphones and lack of access to banks, payments systems based on mobile money that can be used on a feature phone are the dominant form of digital payment,” the paper said.

It said to maximize India Stack’s potential there are challenges to be addressed.

“Despite significant progress, digital literacy remains low in India, and represents a barrier to engaging with DPI-based solutions. The digital divide appears along familiar geographic, gender and income lines. A mere 14.9 per cent of rural households have internet access, compared to 42 per cent among urban households. Women are more likely to be digitally illiterate, particularly among low-income groups. The authorities are working to address this issue through various training initiatives as well as public access outlets, where users are supported to access government services.”

The working paper said that the accessibility of UPI on feature phones and offline modes are also being explored.

It said comprehensive data protection legislation is still missing in India and a robust data protection framework is essential to “protect citizens’ privacy, prevent companies and governments from indiscriminately collecting data, and holding companies and governments accountable for data breaches to incentivize appropriate data handling and adequate investments in cybersecurity”.

The IMF paper said DPI can also help support efforts to make social assistance more resilient and adaptable.

“For example, Aadhaar can be used to exchange data between various schemes across states. Finally, leveraging the DPI, India could improve significantly the timelines, quality, and coverage of the general government fiscal reports, enhancing at the same time fiscal transparency for its citizens, a key issue to improve public sector accountability,” the paper said.

Luis E Breuer, IMF Senior Resident Representative to India, said in a tweet that India’s digital public infrastructure is transforming people’s lives.

“India has built a world-class digital public infrastructure that has lessons for many countries. The latest research by @IMFnews shows how it is transforming the economy and peoples’ lives,” he said.

Spotlight On Digital Revolution: Experts On India’s Digital Story | News 18 Rising India | CNBC TV18 | Watch (msn.com)

Can Chinese yuan drub US dollar to become the most dominant currency? (firstpost.com)

FP Explainers April 05, 2023 15:02:37 IST

The Chinese yuan can come to par with the US dollar in the global trade markets in the coming future, say experts. Reuters (Representational Image)

The rising influence of China’s currency yuan has prompted questions about whether it can oust the US dollar as the world’s dominant currency.

As per a Bloomberg report on Tuesday (4 April), the yuan has replaced the US dollar as the most traded currency in Russia.

Let’s take a closer look at the rise of the Chinese currency globally and if it can overthrow the US dollar.

Yuan topples US dollar in Russia

Russia turned to China’s currency amid Western sanctions following Moscow’s invasion of Ukraine last February.

According to Bloomberg, the yuan put the dollar behind in monthly trading volume this February in Russia, increasing further in March.

Before Russia’s war in Ukraine, the yuan had a negligible trading volume in the Russian market, noted Bloomberg.

Western sanctions targeting Russia’s financial system pressured the Kremlin and Russian companies to shift their foreign-trade payments from the dollar and euro with alternative currencies.

Beijing has also provided a market for Russian goods as Western sanctions sting Moscow.

The trade relations between the Russia and China have grown after the Ukraine war.

Trade between the two nations touched a record $190 billion last year, with most of these transactions in Chinese and Russian currencies, reported Al Jazeera.

ALSO READ: Will a new BRICS currency replace the US currency for trade?

Dumping dollar, accepting yuan 

Though US dollar continues to lead global trade market, countries have started using other alternative currencies for foreign trade and settlement.

China has expressed interest in setting up Asian Monetary Fund to reduce reliance on the US dollar and the International Monetary Fund (IMF), Malaysian prime minister Datuk Seri Anwar Ibrahim said in Parliament on Tuesday (4 April).

“There is no reason for Malaysia to continue depending on the dollar,” Anwar was quoted as saying by Bloomberg.

The Malaysian leader also stated that the country’s central bank is chalking out plans to negotiate trade matters using the ringgit (Malaysia’s currency) and yuan, reported Bloomberg.

It’s not just Malaysia that wants to ditch the US dollar to water down America’s influence over the world economy.

Brazil recently green-lit yuan for trade settlements and investments with Beijing. Reuters reported on 31 March that the yuan has emerged as the second most important currency in Brazilian foreign reserves, surpassing the euro.

The Chinese currency, which did not have a share in Brazil’s foreign reserves till 2018, accounted for 5.37 per cent of Brazilian central bank holdings by the end of 2022.

However, the US dollar still commanded Brazil’s total foreign reserves last year, with 80.42 per cent share.

Earlier in March, Saudi Arabia said it is open to talks to sell its oil in currencies other than the dollar. As per The Wall Street Journal report, the oil-rich nation is also in discussions with China to accept yuan for some of its oil sales.

Last July, Iran said it has completely abandoned the US dollar for its trade with Russia and would adopt Russian ruble for transactions. It also announced it has similar plans for trade with India, Turkey and China.

China, Indonesia, Malaysia, Hong Kong, Singapore, and Chile decided to contribute 15 billion yuan (around $2.2 billion) to the Renminbi Liquidity Arrangement in July 2022.

Beijing has also been promoting local currency in trade settlement and finance through BRICS collective, consisting of Brazil, Russia, India, China and South Africa.

China’s central bank has approved 31 yuan-clearing banks in 29 countries or regions.

In recent years, China has reported “double-digit growth in yuan-denominated trade settlement and investment”, as per South China Morning Post (SCMP).

As per China’s Ministry of Commerce, commodity trade worth around 7.92 trillion yuan (US$1.15 trillion) was settled in yuan in 2022, a surge of 37.3 per cent from a year before.

Will yuan replace US dollar?

Not for now, at least.

Economists Barry Eichengreen of the University of California Berkeley and Camille Macaire of France’s central bank said in a study that replacing the US dollar will not be a cakewalk for the yuan.

They also noted that yuan reserves are seeing a gradual uptick in nations that have close trade relations with China, reported Yahoo Finance.

The yuan accounted for 2.7 per cent of the total foreign-exchange reserves last year, Bloomberg reported citing IMF data.

The study also said the Chinese currency could become an alternative to the US dollar in a “multipolar” world and this parity with the greenback could happen in a few decades.

“China has already helped launch the Asian Infrastructure Investment Bank (AIIB) as an alternative to the World Bank within the Asian region. If it can indeed tackle the influence of the World Bank and IMF within the region, it might be possible for the yuan to become competitive against the US dollar in the long run,” Dr MM Akash, Chairman, Department of Economics, University of Dhaka, told Bangladesh’s daily newspaper The Business Standard.

Nouriel Roubini, the chief economist at Atlas Capital Team, wrote in The Financial Times in February that the US has taken steps that reduced “the appeal of dollar assets among foes and relative friends.”

“These include financial sanctions against its rivals, restrictions to inward investment in many national security-sensitive sectors and firms, and even secondary sanctions against friends who violate the primary ones,” Roubini, known as Dr Doom economist, said.

However, certain obstacles can hamper yuan’s growth in toppling US dollar as the world’s reserve currency, including its strict currency controls.

The lack of transparency in the economic policy of China and Russia can also spook countries to adopt them against the US dollar for foreign trade.

“When it comes to the (Russian) Ruble or the renminbi (yuan), you cannot rely on the transparency of (Vladimir) Putin or Xi Jinping. Since the decision-making process in these countries is rather undemocratic, it is difficult for traders to rely on these currencies as reliable alternatives” Dr Zaidi Sattar, Chairman of Bangladesh’s Policy Research Institute, told The Business Standard.

Top economist Paul Krugman has also rebuffed concerns of the Chinese yuan ending the dominance of the US dollar in the global financial system, saying in a New York Times op-ed that he does not expect this to happen anytime soon.

With inputs from agencies