The mighty US dollar continues to reign supreme in global markets. But the greenback’s dominance may well be more fragile than it appears, because expected future changes in China’s exchange-rate regime are likely to trigger a significant shift in the international monetary order.

For many reasons, the Chinese authorities will probably someday stop pegging the renminbi to a basket of currencies, and shift to a modern inflation-targeting regime under which they allow the exchange rate to fluctuate much more freely, especially against the dollar. When that happens, expect most of Asia to follow China. In due time, the dollar, currently the anchor currency for roughly two-thirds of world GDP, could lose nearly half its weight.

Considering how much the United States relies on the dollar’s special status to fund massive public and private borrowing, the impact of such a shift could be significant.  The sustainability of growing US debt might be called into question.

The long-standing argument for a more flexible Chinese currency is that China is simply too big to let its economy dance to the US Federal Reserve’s tune, even if Chinese capital controls provide some measure of insulation. China’s GDP (measured at international prices) surpassed that of the US back in 2014 and is still growing far faster than the US and Europe, making the case for greater exchange-rate flexibility increasingly compelling.

A more recent argument is that the dollar’s centrality gives the US government too much access to global transactions information. This is also a major concern in Europe. In principle, dollar transactions could be cleared anywhere in the world, but US banks and clearing houses have a significant natural advantage, because they can be implicitly (or explicitly) backed by the Fed, which has unlimited capacity to issue currency in a crisis. In comparison, any dollar clearing house outside the US will always be more subject to crises of confidence – a problem with which even the eurozone has struggled.  Democrats and Republicans broadly agree about China, and there is little question that trade deglobalization undermines the dollar.

Chinese policymakers face many obstacles in trying to break away from the current renminbi peg. But, in characteristic style, they have slowly been laying the groundwork on many fronts. China has been gradually allowing foreign institutional investors to buy renminbi bonds, and in 2016, the International Monetary Fund added the renminbi to the basket of major currencies that determines the value of Special Drawing Rights (the IMF’s global reserve asset).

In addition, the People’s Bank of China is far ahead of other major central banks in developing a central-bank digital currency. Although currently purely for domestic use, the PBOC’s digital currency ultimately will facilitate the renminbi’s international use, especially in countries that gravitate toward China’s eventual currency bloc. This will give the Chinese government a window into digital renminbi users’ transactions, just as the current system gives the US a great deal of similar information.

Will other Asian countries indeed follow China? The US will certainly push hard to keep as many economies as possible orbiting around the dollar, but it will be an uphill battle. Just as the US eclipsed Britain at the end of the nineteenth century as the world’s largest trading country, China has surpassed America by the same measure.

The Chinese renminbi will not become the global currency overnight. Transitions from one dominant currency to another can take a long time. During the two decades between World Wars I and II, for example, the new entrant, the dollar, had roughly the same weight in central-bank reserves as the British pound, which had been the dominant global currency for more than a century following the Napoleonic Wars in the early 1800s.

So, what is wrong with three world currencies – the euro, the renminbi, and the dollar – sharing the spotlight? Nothing, except that neither markets nor policymakers seem remotely prepared for such a transition. US government borrowing rates would almost certainly be affected, though the really big impact might fall on corporate borrowers, especially small and medium-size firms.
Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow. (The Guardian 4/3/21)
• (Kenneth Logoff is professor of economics and public policy at Harvard University. He was the chief economist of the International Monetary Fund from 2001 to 2003)

Fossil fuel companies in the US received billions of dollars in tax benefits through government coronavirus relief measures, but laid off tens of thousands of workers, figures show.

A group of 77 firms received $8.2bn in tax-code changes under the massive stimulus bill passed by Congress last last year, and some benefited from the paycheck protection program. Despite this, almost every firm laid off workers, with over 58,000 people losing their jobs. (The Guardian 4/2/21)

My comment:  I believe that Epicurus, were he alive today, would protest this cruel and selfish policy on the part of CEOs towards 58,000 people, many living on a knife edge, I have no doubt.  Restoration of faith in government is sorely needed, and one thing is essential:  the CEOs have to pay a higher proportion of their income in tax – and actually  pay it.  They are pampered by politicians who want their campaign money.  In my neck of the woods this is de facto corruption.  It goes to much of what is rotten in the system; party affiliation is irrelevant.   We all ( mostly) lose from the present system.

Thousands of British citizens in France have been left without a valid driving licence, or face losing theirs within months, because of bureaucratic overload and the failure of the two countries’ governments to sign a post-Brexit reciprocal agreement.

“I’d say there are 3,000 who are seriously worried – for whom this has really become nightmarish,” said Kim Cranstoun, who moved permanently to France three years ago. “Commuters risk losing their jobs, tradespeople can’t work, elderly people have missed medical appointments. Many British people in France live in quite remote, rural areas, with little or no public transport. Some are thinking of moving back to the UK. It’s quite desperate.”

The French government announced late last year that, as a consequence of Brexit, British residents of France would need to exchange their UK licences for French ones, and would have until 31 December 2021 to apply to do so.

Short-term visitors and tourists in France can continue to use British licences.
However, those applying to exchange their licences since January have had their requests systematically rejected by a new French online system, known as ANTS, on the grounds that no reciprocal licence agreement is yet in place between the UK and France.
Driving in France without a valid licence can result in a fine of up to €15,000 (£12,808), while taking the French driving test instead of swapping licences entails mandatory lessons and a daunting French-language theory exam, at a cost of about €1,800.

Government sources suggest a UK-France reciprocity agreement is “close to being sealed”, but not there yet. The problem has been compounded by administrative overloads at the centres in Nantes and Paris that processed earlier paper exchanges, but became swamped by more than 100,000 applications during 2018 as a possible no-deal Brexit loomed.   This prompted France to drastically limit applications by decreeing, in April 2019, that UK driving licences were valid for as long as Britain was an EU member, and requesting holders not to try to exchange their licences unless they were expiring or lost. It seems that UK licences “will continue to be recognised in France until 31 December 2021”, but the rules for exchanging  licences have not been confirmed

Many Britons duly waited until after the Brexit transition period on 31 December 2020 to begin the process, and now find themselves with licences that have expired and are unable even to start exchanging them.
“People followed both governments’ instructions, and are now being punished through no fault of their own,” said Cranstoun. “This is having a massive impact, on working people and pensioners. Unless it’s sorted, we’ll have to take French tests.”. (Jon Henley Europe correspondent, The Guardian, Tuesday, 30 March 2021)

My comment:  The EU is not about to make it easier to leave the bloc.  We knew this years ago, and I personally, sympathize with the French.  So the French driving may be scary, but their test is exhaustive, by reputation.  You might have no choice, fellas.  Blame the Brexiteers.