Local Currencies Should Be Used In Belt & Road Financing – PBOC President

People’s Bank of China’s President Encourages Use of Local Currencies Along Silk Road.

De-Dollarization Accelerates.

Does This Mean GAME OVER For the Dollar?

The Lowest Cost. Period.

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The Belt and Road Initiative

At the same time, the use of local currency will gradually reduce the dependence on the dollar and other major currencies, reducing the risk of exchange rate fluctuations” Zhou Xiaochuan, President of the People’s Bank of China.

President of the People’s Bank of China gave a speech earlier this month titled “A discussion of the construction of “all the way” investment and financing cooperation system” relating to the belt and road initiative . Part of his speech touched on the use of local currencies to finance projects along the silk road and Chinese de-dollarization initiatives.

Advantages of Using Local Currencies – Zhou Xiaochuan, President of the People’s Bank of China

  • mobilizes local savings and global funding;
  • reduces the cost of exchange; and
  • maintains financial stability; gains confidence in local currency

Belt and Road Objectives

The belt and road initiative is a regional trade agreement with China coordinating and facilitating progress with a goal to “connect Asian, European and African countries more closely and promote mutually beneficial cooperation to a new high and in new forms.”

Click to see a list of Belt and Road countries.

As part of the belt and road initiative President noted: “China has also established local RMB clearing arrangements in 23 countries and regions and designated local Remnimbi (RMB) clearing lines. China.. develop[ed]the RMB cross-border payment system (CIPS), and many of the participants are financial institutions from countries along the “all the way” Mr Xiaochuan also noted the “internationalization of the RMB and the RMB joining the International Monetary Fund SDR currency basket. He also noted that Poland, Russia and other countries along the country had successfully issued RMB bonds (Panda debt).”

Click to see a list of China’s Belt and Road Initiatives

China wants a bigger say in the world economy, but they also want to keep their US/western business while they build their eastern business.

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Impact on the Dollar

The Belt and Road initiative is less about a reduction in dollar use and more an increase in NEW finance and NEW wealth creation and trade that will happen in RNB and local currencies outside the dollar.

This doesn’t mean “Game Over” or the end of the dollar, but rather a boost to local currencies.

Hoarding Gives Currencies More Value Than Use

The Bitcoin and Gold Examples


A few years back many bitcoin aficionados were predicting higher prices (correctly) on the (incorrect) premise that increased Bitcoin adoption would drive the price higher as more and more businesses and people used bitcoin to transact.

In February 2014, I wrote that more businesses accepting bitcoin would not create demand for bitcoin (unless such businesses mandated bitcoin use), but rather create more places to use/SELL bitcoin. Increased adoption if it occurred would create selling and a lower and eventually more stable price.

Bitcoin, however, indeed rose from its $650 price in February 2014 to over $1,500 today, but not because of increased use. Rather, bitcoin rose because it was hoarded as a liquid store of value. The more it rose, the more people wanted to hold on to it. The more it rose, the more others wanted some of the limited issued crypto-currency.


Gold hasn’t been used as a currency since the 1930’s. Even when dollars were exchangeable for gold under the Bretton Woods Agreements from 1944 -71, countries used the dollar far more than direct gold exchanges. Indeed countries would prefer to settle settle in dollars so they would not have to drain their gold. (see the Smaulgld CIA and Gold series) During the Bretton Woods Agreements, only central banks could exchange dollars for gold, so the last time gold was used by everyday people as a currency was in the 1930’s.

Gold rose immediately after Nixon ended the gold standard in 1971 when it was officially removed from the global financial system. Since 1971, gold has become attractive as a reserve asset for central banks to hold and for individuals to hoard as a store of liquid value.

US Treasuries

U.S. Treasuries are the most widely held reserve asset in the world. Even if silk road countries trade or finance in other currencies, that doesn’t mean they will dump all of their U.S. Treasury bonds. Treasury Bonds are a liquid store of value in today’s negative interest rate environment. Dollars held in the form of US Treasuries will continue to be held in countries using the dollar as a transactional currency (U.S., Europe, Australia, Latin America, Japan and China), although countries may re-balance their reserves. Also as Belt and Road countries gain economic prominence they will increase their trade with countries outside their region and trade with countries using the dollar. This will ensure need for these countries to hold some of their reserves in US Treasuries.

The Fed has been raising interest rates, as I have been predicting since 2015 perhaps for the sole reason of trying to keep new issued Treasury Bonds attractive by paying a positive rate of interest while other sovereign entities offer zero interest or negative yields.

The dollar may indeed one day “collapse”. That collapse, however, is more likely to come from domestic fiscal irresponsibility, than increased trade along the silk road using local currencies.

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Further Reading

To discuss the construction of "all the way" investment and financing cooperation system by Zhou Xiaochuan, President of the People's Bank of China

People's Republic of China Full text: Action plan on the Belt and Road Initiative

Belt and Road Initiative can cure pains of globalisation

Is the ‘Belt and Road Initiative’ a pipe dream or golden goose for Hong Kong investors?

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