South
Africa will this week take some initial steps to unseat the US dollar as the
preferred worldwide currency for trade and investment in emerging economies.
Thus, the
nation is expected to become party to endorsing the Chinese currency, the
renminbi, as the currency of trade in emerging markets.
This means
getting a renminbi-denominated bank account, in addition to a dollar account,
could be an advantage for African businesses that seek to do business in the
emerging markets.
The move is
set to challenge the supremacy of the US dollar. This, experts say, is the
latest salvo in the greatest worldwide currency war since the 1930s.
In the 30s,
several nations competitively devalued their currencies to give their domestic
economies an advantage over others.
And this
led to a worldwide decline in overall trade volumes at the time.
The north
will be pitted against the entire south in a historic competitive currency
battle – whose terrain has moved to the Indian capital New Dehli – where the
Brics (Brazil, Russia, India China and South Africa) nations will assemble next
week.
China seeks
to find new markets for its currency and to lobby to internationalise it
throughout the Brics states.
For China
this is not a new game. In 2009, senior Chinese banking officials issued a
statement that the international monetary system was flawed owing to an
unhealthy dependence on the US dollar and called for a “super-sovereign”
international reserve currency.
Experts say
Beijing’s first step is to internationalise its currency (by expanding its
reach beyond China), liberalise it (to allow its value to be determined by the
market instead of actively managing it as they currently do) and then make it a
reserve currency for many nations in the developing world.
Africa’s
largest bank, Standard Bank, says in a research document: “We expect at least
$100 billion (about R768 billion) in Sino-African trade – more than the total
bilateral trade between China and Africa in 2010 – to be settled in the
renminbi by 2015.”
The bank
anticipates that the use of the renminbi will lower transaction costs in
Africa, thus lowering the barriers to doing business.
It also
says that the Chinese will be more successful in transacting in renminbi in
Africa than anywhere else because most currencies are weak and somewhat
localised.
Not only
will the US dollar be challenged, but also the entire international financial
regime – led by the World Bank and the International Monetary Fund – which has
been dominant since the end of World War II.
South
Africa’s place in the emerging international financial regime is set to be
enhanced.
Zou Lixing,
vice-president of the Institute of Research of the China Development Bank, told
the Brics preparatory meeting recently that “although the economic aggregate of
South Africa is small relative to the Brics, South Africa provides a gate for
the Brics to get access to the huge African market”.
The
five-member nations have collectively called for an end to the tacit agreement
between the US and Europe that ensures that the head of the World Bank is an
American citizen, and the International Monetary Fund head is European.
They have
proposed that an emerging market candidate be fielded when the term of the
current World Bank head, Robert Zoellick, expires in three months.
Fundacao
Vargas, a member of the Brazilian delegation, said Brics could confront
“existing governance structures”, and seek to strengthen the blocs’ influence
in established institutions like the World Bank and the International Monetary
Fund, while creating alternatives.
The demand
for greater political say in international affairs dovetails with China’s
expected rise as a financial superpower in the next eight years.
Vargas
showed the preparatory meeting projections indicating that China’s economy will
have eclipsed that of the US by 2020, hence the promotion of the renminbi as
the preferred currency of the south.
The
renminbi has traditionally traded at a deliberately lower exchange rate, which
gave a huge boost to China’s domestic economic sectors and enabled its booming
industrialisation and growth.
The US and
other trading partners have long accused China of being a “currency
manipulator”.
Last week,
Brazil declared its commitment to keep its own currency – the real – low. Its
finance minister, Guido Mantega, reiterated his November 2010 declaration that
a global currency war has broken out.
He said:
“We do not want to lose our manufacturing sector.
We will not
sit back and watch while other countries devalue their currencies.”
Brazil and
China cried foul last year when, through a slew of initiatives dubbed QE2 –
Quantitative Easing Two – the US indirectly devalued its currency by pumping
about $600 billion into its economy to protect the economy from sliding back
into recession.
South
African economists were in two minds about the moves to extend the influence of
the renminbi.
Economist
and academic Peter Draper told City Press recently that the decision to
establish a Brics development bank and to enlarge the renminbi's sphere “is
political and related to the current political dynamics within the World Bank”
and the established international financial system.
Tom Wheeler
of the South African Institute of International Affairs said developments in
New Delhi (India) were “giving substance to the previously (and) loosely
arranged economic block”.
- City Press
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| A bank employee counts U.S. dollar notes during a photo opportunity at a bank in Seoul on May 4, 2010. Asian countries are looking to double their reserves in an effort to rely less on the International Monetary Fund. (Reuters Photo) |
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