Tishwash: World trade abandons the dollar.. 60 countries kick the hard currency and resort to the yuan
Trading in local currencies is now a common practice in the global economy among many countries, where the local currency trade (LCT) has gained so much momentum that bilateral trade agreements by local currencies and de-dollarization are now widespread.
In the aftermath of the pandemic and the crisis in Ukraine in particular, many medium and small countries are now sharing local currencies in their trade dealings, and are abandoning the US dollar, which dominates a large part of the global economy.
Russia And Bangladesh Recently announced their intention to make payments in yuan, in order to overcome the challenges posed by US sanctions against Russia. Before that I signed Bangladesh And India on a trade agreement in Indian rupees.
A report by the European magazine Modern Diplomacy says that eastern countries now prefer to trade in local currencies, and not only Bangladesh And India And Russia. Where announced Brazil And China Recently announced plans to trade in the yuan. In addition, there are proposals about creating a new currency to replace the dollar in BRICS countries.
What does de-dollarization mean?
The term “de-dollarization” refers to the process of moving away from the use of the dollar in international trade. In order to reduce risk and vulnerability in transactions, the dollar has been used traditionally in international trade, in addition to this it is the result of the supremacy of the United States in terms of soft power and the global economy.
The European Journal says that de-dollarization is a strategy previously used by countries to challenge the United States, however, in the post-Covid period, fluctuations in foreign exchange reserves (Forex) and the global dollar crisis are among the main reasons behind the current de-dollarization process, so geopolitical competition Dwindling confidence in the dollar is currently a contributing factor to this process.
Trading local currencies is a common approach to de-dollarization. The term LCT stands for Local Currency Cross Border Trade. Here the currencies are converted directly based on the exchange rates of these countries, and the rupee-based trade agreement is considered between Bangladesh And IndiaAn example of an LCT.
Apart from the LCT, the third currency trade is currently another aspect of the de-dollarization process. One such example is the payment between Bangladesh And Russia In Chinese yuan, where I decided Bangladesh And Russia The use of the yuan to settle loans in order to evade US sanctions on the use of Russia For Universal Gate – Swift.
What new countries intend to “de-dollarize” or trade in local currencies?
Today, some 60 countries are involved in trading in their own currencies, and it is also practiced by many of the United States’ longtime allies in the Global South, such as India which currently has LCT agreements with 19 countries.
Saudi Arabia has begun to accept the yuan in oil trade, and other Gulf countries are considering allowing the yuan in oil trade as well. Previously, oil was only sold by the Gulf states in US dollars, however it seems that they are now considering taking in additional currencies.
The idea of creating a new currency is another noteworthy initiative in the ongoing de-dollarization process. The BRICS organization is working to facilitate trade among its members to launch a new currency. The BRICS countries currently account for 41% of the world’s population and 31.5% of the world’s GDP. To reduce its dependence on the dollar, Indonesia adopts the BRICS model.
In addition, a new single currency known as the “sur” has been tentatively adopted in Latin America, where you want it Brazil a nd Argentina, the two Latin American giants, to start using the currency in their bilateral trade to reduce their dependence on the dollar.
Why are countries moving away from the dollar?
The current process did not happen over the course of a day or a year. Instead, it was a long-term process that lasted the past 20 years. The percentage of global reserves held in dollars is gradually decreasing, according to Bloomberg. The percentage of dollars held in foreign exchange reserves has fallen from 73% in 2001. to 58% by 2023.
While the dollar’s share in global reserves is declining, the yuan’s share is gradually increasing and currently ranks fifth in the world with a share of 3%.
The yuan surpassed the euro as the second largest foreign currency in the world Brazil in foreign exchange reserves, which is one of the key factors behind the LCT deal. The share is increasing China of global foreign exchange reserves along with international trade and investment.
Is the Chinese yuan in a strong position to compete with the dollar?
In addition, many countries have begun to believe in the yuan as a reliable and trustworthy currency, as a result many countries choose the yuan over the dollar, because the use of the yuan in international trade also helps the country maintain a balance in its foreign exchange reserves.
And the United States has taken advantage of its financial system to subdue its geopolitical opponents, especially in conflicts with China And Russia.
This “weaponization” of the currency is undermining international confidence, and the geopolitical use of the dollar, which is seen as a global commodity, is making the Chinese and Russians nervous. And RussiaThey are already banned from Swift, which makes it difficult for them to do business with other countries.
The unilateral measures and choices taken by the US administration regarding the dollar exacerbate the current dollar crisis in the global market. The United States has increased its interest rate eight times in the past year, resulting in higher exchange rates that affect people who use dollars around the world. thought the political scientist Fareed Zakaria Also, the United States itself is responsible for such a decline in the use of the dollar due to its geopolitical use and weaponization.
However, in addition to geopolitical and trust issues, the process of de-dollarization is also driven by high exchange rates and low foreign exchange reserves in developing countries. The economy is already suffering in the post-Covid era, and in the context of the crisis in Ukraine. They are turning to LCT to preserve their hard-earned cash, in order to prevent future distress. Additionally these nations have grown to rely on both Russia And Chinain a complicated way.
Therefore, they cannot simply ignore their business relationships with these American competitors. They use either the LCT or the Yuan to keep these trade links going.
For example, touts Bangladesh A neutral and balanced foreign policy towards the major countries. It must pay for the $12 billion nuclear project it has with Russia, so resort Bangladesh And Russia to the yuan to avoid complications related to sanctions. The same applies to Brazil, as it intends to use its reserves of yuan.
Although the dollar’s share in global foreign exchange is declining, ideas for launching new currencies are advancing, trading in the yuan is gradually increasing, LCT agreements are also on the rise, the dollar still has the largest market share with 58%, yet there is no prominent competitor. It is the closest competitor, and the euro share is only 20%.
So the current process can be described as a “beginning,” and it is still too early to know whether or not the process will end the Bretton Wood system.
However, there is no denying that Zakaria also believes that the United States itself is responsible for the de-dollarization, because it failed to maintain On trust, it has been used as a weapon of public interest. link
Harambe: Vietnam a promising market for wealth and personal banking | VnExpress International (5/17/23)
Taylan Turan, Group Head of Retail Banking and Strategy for HSBC’s Wealth and Personal Banking business, said Vietnam is one of the bank’s most strategic markets due to its potential for wealth and personal banking.
In 2022, HSBC reported its adjusted pre-tax profit in wealth and personal banking rose 35.5% year-on-year to $8.5 billion, while group results for the year rose to $24 billion from $20.6 billion.
Turan shared HSBC’s plan for unlocking this promising market by offering wealth and personal banking services and products.
What are the most exciting prospects in Vietnam for HSBC?
It is my second time visiting Vietnam in this role and I am always inspired by the energy and dynamism of the place and the people.
We’re optimistic about the country’s prospects. It is the fastest-growing economy in ASEAN with a GDP growth rate of 8.02% year-on-year in 2022. It also registers the strongest growth in banking returns among ASEAN markets.
HSBC is contributing to this space through our wealth and personal banking business by supporting the evolving needs of the growing middle class. For example, mortgage financing for their aspirations to own a home, credit card services to make life easier and more convenient; help to manage their wealth via strategic partnerships (such as VinaCapital and Dragon Capital); as well as meeting the needs of families who wish to educate their children overseas.
What are the driving forces behind the growth in wealth and personal banking business?
One core factor is Vietnam’s growing middle class which is set to make the country the world’s 10th largest consumer market by 2030, bigger than Germany and the U.K. This trend translates into rising incomes and affluence across all segments of society, and we anticipate the highest growth will be among high-net-worth individuals and the mass affluent population, as these segments hold over 80% of the overall liquid assets.
We expect this structural growth to increase demand for wealth and banking products and solutions, particularly in the retail space.
In 2020, Vietnam approved its National Financial Inclusion Strategy which aims to provide at least 80% of adults with a bank account; and the number of non-cash transactions is expected to expand between a fifth and a quarter annually by 2025. For Vietnam to attain its ambition, it needs the twin tactics of financial services expansion and a shift to a non-cash economy.
With the government’s focus on financial inclusion, I see a huge opportunity for the country’s wealth and personal banking market.
With such huge potential, what’s HSBC’s plan for Vietnam?
As we look to grow in Asia, Vietnam is one of our strategic priority markets in terms of wealth and personal banking.
The development of Vietnam’s retail industry, including wealth and personal banking, is strongly supported by the country’s stable economic growth and population size of approximately 100 million people who are relatively young with rising income levels. Coupled with increasing living standards, Vietnam is one of the most dynamic economies in Southeast Asia that is attracting retailers and financial services.
Firstly, we want to grow our unsecured lending business. Our ambition is to deliver products and services which meet the needs of our growing customer base in Southeast Asia. As part of this, we are doubling down on developing new digital capabilities that match the variety of their borrowing needs, as well as benefits they can use and enjoy instantly. As a leading card issuer in Vietnam, we are strongly placed to meet this strong demand.
For example, Vietnam has a low card penetration rate (only 17% of the population has a credit card), combined with fast-growing card spend at 19% CAGR between 2017 to 2025). This card spending growth is much higher than other markets (such as the Philippines, Indonesia, and Malaysia, at 7%, 6%, and 4% CAGR respectively), signaling a clear opportunity for us to support customers who need credit.
HSBC provides lending to consumers by making banking simple, better, and more accessible in a responsible way. We continuously improve our customer journeys, especially through digital channels, providing customers with simple and reliable information about our products that helps them to make sound financial decisions.
Secondly, we will build on our strong brand affinity to deepen our relationships with mass and emerging affluent customers. They represent the fastest-growing customer segment, and we expect them to grow at 10% CAGR between 2021 to 2025.
Among international banks operating in Vietnam, HSBC is the number one brand, as well as ar market share of affluent customers. I believe this ranking is largely part of our strong international propositions and best-in-class Premier Relationship Managers.
Last but not least, we aim to harness a rapidly rising need for mortgages – the fastest-growing lending product among the mass affluent segment. I’m told of an old saying that the three most important things in life are “Buying a buffalo, getting married, and building a house”. We recognize the pace of Vietnam’s urbanization and need for housing, combined with its strong home ownership culture.
Global economic growth is projected to fall from 3.4% in 2022 to 2.8% in 2023 according to the IMF. Vietnam’s GDP growth is expected to slow down this year, too. Is this really a good time for the retail sector?
Despite the challenges in the global environment, we’re optimistic about Vietnam and more broadly Southeast Asia. If you look at the spending trends, the picture is positive.
For example, spending by mass affluent customers – comprising millennials who are tech-savvy and enjoy traveling – is driving the region’s economy. They account for two-fifths of household wealth in major Southeast Asia markets, and more than half of their total spending is in the premium and luxury categories. We expect the size of this segment to reach 136 million by 2030.
These regional economies continue to show resilience, with consumption growth driven by a full-scale reopening and pent-up demand, particularly for travel and leisure within the region. HSBC will continue to build innovative products and services that enable consumers to spend and borrow for the experiences that matter most to them and their families.
This year as a whole is going to be a tough one for Vietnam, but I believe that it will overcome the challenges and 2023 will utimately be successful.