Changes are brewing amid the stability of the international monetary diversification pattern
The COVID-19 epidemic has not changed the distribution pattern of international currency status, and the pattern of the “duopoly” of the US dollar and the euro has not changed. Data show that as of the end of December last year, the pattern of the international payment field was that the US dollar and the euro formed the far leading first echelon, accounting for 42.2% and 31.7% of the market share respectively; the British pound and the Japanese yen were in the middle echelon, respectively. occupies 7.0% and 3.5% of the share; the rest is the third echelon including China, competing for the rare remaining share. From the perspective of international payment arrangements, the collection and payment stage arrangements below the middle echelon are bilateral and regional, so the increases and decreases between various currencies occur among their respective echelons. The biggest change in the share of international payments occurred between the U.S. dollar and the euro, with both sides gaining and losing. The 2020 epidemic has not changed the status of the US dollar as the leading international currency. Judging from recent data, the share of the US dollar in international payments has increased, with the income mainly coming from the decrease in the euro and the British pound. Even if the U.S. dollar index declines in the future, the U.S. dollar’s status as the leading international currency in the field of international payments will not change. The diversified pattern of international currency echelons will remain stable. At present, there is still no sovereign currency that can achieve echelon climbing in the international payment market. sign. The stable pattern among various currencies in international payments actually reflects the following fact: the existing major international currency issuing countries, relying on their current dominant position in international payment arrangements, suppress the improvement of other sovereign currencies due to economic development. to realize this natural need.
The end of the bullish trend in the U.S. stock market and the impact of the epidemic on the economy have directly led to turmoil in the U.S. financial market. The Federal Reserve’s vigorous super QE has once again flooded the international financial sector with U.S. dollars; changes in the international commodity market and investment capital have jointly maintained the strength of the U.S. dollar, thus making the U.S. dollar’s status in the international payment pattern rise instead of falling. Judging from the impact on the financial system functions of various countries reflected in the changes in the currency multipliers of various countries, although the impact on the financial system functions of the United States is smaller than expected, it is the largest in the world in comparison; the United Kingdom is second; Europe and Japan are basically unaffected; Many emerging economies such as China have remained stable. Differences in changes in financial system functions mean differences in changes in financial market fluctuations across countries; www.hsymr.com The greater the impact on the functions of the financial system, the greater the fluctuations in financial markets. Obviously, although the U.S. financial market is large in scale, its ability to withstand volatility continues to decline. Although it still maintains a strong attraction to international capital in international financial competition due to its status as the number one economic power, its status has also been declining. The European financial market’s resistance to volatility has gradually stabilized and rebounded after the European debt crisis. The impact of the epidemic on European financial markets in 2020 will be relatively limited. Thanks to its efficient anti-epidemic and improved economic status, the fluctuations caused by the epidemic in China’s financial market in 2020 were the most limited among the world’s major economies. If the internationalization and diversification development trend of China’s financial assets itself had not taken over the mainstream, the phenomenon of international capital flowing into the Chinese market in the post-epidemic era would have become a highlight in the international financial field.
The epidemic has greatly promoted the popular application and all-round penetration of Internet technology in economic and social life, and disruptive technological advancements in international payment arrangements are quietly changing. Compared with the use of domestic sovereign currencies, international payment arrangements themselves are more dependent on the advancement of Internet information technology. Therefore, the application of digital currency technology in the field of international payments is actually a more friendly and appropriate scenario – digital currency itself cannot be separated from supervision, but it does not rely on sovereign credit.
Under the current common credit currency system in the West, the national credit behind the currency must be reflected in national debt. Therefore, contemporary sovereign currencies are always affected by a country’s fiscal fluctuations. The use of digital currency in international payment arrangements frees the settlement currency from the current shortcomings of being affected by the domestic policies of the issuing country of the sovereign currency. At the same time, there is an inherent consistency between the technical support system of digital currency and the technological system improvement needs of international payment arrangements. The epidemic has further improved Internet technology, made progress in new infrastructure such as 5G and IDC, and improved the infrastructure of information technology and Internet of Things technology. The application scenarios of blockchain technology will be closer to reality. After the epidemic, digital currency is expected to receive priority development by virtue of its technological advantages and independence, and will have a disruptive impact on the existing international monetary structure in the future.
The interest rate gap between China and foreign countries may exist for a long time
Although all countries have responded to the impact of the epidemic with monetary expansion, the differences in the intensity of monetary expansion among countries have increased. Among major economies, the United States and Brazil have expanded most violently, followed by the United Kingdom and South Africa, and Japan has been the most moderate. The same is the case of monetary expansion, but the domestic interest rate markets of various countries have been affected differently. The interest rate market trends in various countries have shown obvious differentiation: the interest rates in the European bond market have risen, while the interest rates in the US, UK, and Chinese bond markets have experienced varying degrees. decline. The differences in the direction of interest rates among countries reflect the following facts: Europe, which has implemented negative interest rates, is working hard to normalize monetary policy, the United States has a tendency to slip into negative interest rates, and emerging markets such as China have ample room for normal monetary policy operations.
The reason for the low market interest rates in Western economies such as the United States, in addition to the impact of ultra-low policy interest rates and poor economic prospects, is also affected by the overseas credit currency system’s arrangements for the central bank’s base currency creation – base currency creation needs to be linked to sovereign credit. This arrangement not only improves currency stability, but also increases the central bank’s demand for government bonds. In fact, the government obtains currency issuance income. Under the arrangement of the modern credit currency system, government deficits are no longer resolved in the form of late inflation, but are directly compensated in the form of national debt and currency issuance in the contemporary era. Therefore, the more debt is compensated, the happier society is (because it gets money); the central bank’s expansion of its statement also directly promotes the decline in interest rates. The impact on the international scale is the persistence of interest rate differentials between China and major Western economies such as the United States and Europe.
After the 2008 financial crisis, the Fed’s QE policy directly reversed the direction of the interest rate differential between China and the United States. After June 2010, the 10-year treasury bond yield difference between China and the United States has continued to be positive; in 2020, the Federal Reserve once again launched an unprecedented monetary expansion, causing the interest rate difference between China and the United States to further expand. The existence of interest rate differentials between China and foreign countries will have a significant impact on China’s international financial environment and create favorable conditions for China’s current financial reform and opening up.
However, we cannot expect too much from international capital inflows caused by interest rate differentials between China and foreign countries. Because funds flowing in based on interest rate spreads are basically funds with lower risk appetite, most of them will flow to the fixed income market, especially the sovereign bond market. However, China’s sovereign bond market is not large enough, and its ratings are discriminated against by international rating agencies. Therefore, the probability of explosive growth in the future is unlikely, but the rapid growth momentum in the past two years will continue. Data show that as of May 2020, the scale of Chinese bonds held overseas was 2.4 trillion, an increase of 200 billion from the end of 2019 and an increase of 700 billion from the end of 2018.
