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‘Renminbi liquidity agreement’ is a step towards monetary stability

‘Renminbi liquidity agreement’ is a step towards monetary stability

June 28, 2022 (EIRNS) — The People’s Bank of China central bank has set up a renminbi currency stabilization fund at the Bank for International Settlements (BIS) with six other central banks: those of Indonesia, Thailand, Malaysia , Hong Kong and Singapore , and Chile. The Renminbi Liquidity Arrangement (RLA) began with the equivalent of $20 billion in equal contributions from these banks in renminbi or dollars. The RLA was actually announced by the BIS on June 26.

As noted in a June 28 China Daily article, “At a time when the U.S. Federal Reserve is accelerating the pace of interest rate hikes and balance sheet shrinking, and the international financial market faces the potential risk of large fluctuations, the establishment of such an arrangement not only helps to strengthen the capacity of emerging economies, but also represents the latest progress in the internationalization of the renminbi. Thus, the triggering issue is the severe damage caused to the currencies and economies of developing countries by the rapid succession of Federal Reserve rate hikes, in addition to the militarization of the dollar by the sanctions. The article continues,

“According to the Chinese central bank, this arrangement is conducive to meeting reasonable international demand for the renminbi. Liquidity support programs initiated by the BIS are generally considered long-term institutional arrangements, but through this arrangement, the BIS can also help prevent international financial risks triggered by the tightening of monetary policies in Europe and the United States. United States.

In Russia, Nikita Kondratyev of the Ministry of Economic Development told the RBC business website on June 28 that to launch a new reserve currency, “it is necessary to build a common financial architecture, increase the share of settlements in national currencies, to achieve a certain level of de-dollarization, something that is already happening in BRICS countries,” reported. Sergey Storchak, of the major Russian national investment bank VEB.RF, told the Global Times during the BRICS summit: “The BRICS and other interested nations must discuss the establishment of their own independent global financial system. , whether it is based on Chinese currency. Or they will agree on something different.

The renminbi liquidity arrangement can immediately stabilize the level of the RMB against the dollar, and therefore can then be used to buy other developing currencies and stabilize their exchange rates; it can also grow by subsequent contributions. This is reminiscent of the Franklin Roosevelt administration’s “Good Neighbor” aid to Ibero-American governments, which often began with monetary stabilization funds and then progressed, in some cases, to development loans.

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