#EP87 Cryptocurrencies – India’s Digital Coin and China’s Digital RMB & how US GDP is related

 

Sree Iyer: Hello and welcome to Episode number 87 of Daily Global Insights. I’m your host Sree Iyer and joining me is Sridhar Chtiyalaji. Namaskar and welcome to PGurus Channel sir.

Sridhar Chityala: Namaskar and very good morning to you on this Sunday.

Sree Iyer: Sridhar Chityalaji has found his voice back and he’s raring to go. We have two very important topics to discuss today. One was the announcement by the Indian government that India is going to come up with its own version of Cryptocurrency called digital coin and is this going to be a response to the digital RMB of China? And what was the reason for digital RMB for China? Why did they do that?

So I’m going to set up a bit of the background of all this before I hand over the nitty-gritty details for Sridhar to explain. First of one thing that we should all remember is China’s conversion rate with the United States is a managed conversion. In other words, it is not a currency that was allowed to float freely, they picked it at around 6 RMB to the US dollar and the US used to periodically make noises and they would depreciate it a little bit. It is come down to I think around seven sometimes but it is the moon or less six to seven. Now, what this has resulted is in the international trade and commerce not trusting the RMB. Nobody would accept RMB for their trade transaction with China instead they opted to use what is called as the Hong Kong dollar. Why? because when the British left China as part of that to stabilize the whatever the businesses were there in Hong Kong the United States stepped in and made a yearly agreement with Hong Kong and it was promised that the Hong Kong dollar would be pegged to the US Dollar and it was a small range of between 7.75 Hong Kong dollars to 7.85 Hong Kong dollars to the US dollar and it has been like that since I think 25 plus years. Now, what normal trade happens is everybody deals with the Hong Kong dollar and then there is some sort of an adjustment between the Hong Kong dollar and the RMB and China has managed to escape the devaluation such as what you see with India.

Now, why is the world very very leery or weary of the RMB? Because they don’t know how many RBM’s China prints every year. It has been rumoured that China prints about 2 to 2.5 times the GDP of their country in the local currency and therefore nobody knows and if you really let the RMB to float freely, people think that the Chinese economy in the United States dollars will come down from 13 trillion too much more down to the ground 6.5 trillion. You get the idea, what I am trying to say here is that China needed something that they could say, we are different now, we have a different currency, we understand it without accepting it. We are going to put all the gold that we have in our treasury behind this and that is going to be the digital RMB. The digital RMB is a cryptocurrency and they opened it for their own internal city-to-city transactions a few months ago and now it is starting to become the main stage. Why is China doing this because with its current RMB it cannot challenge the US dollar with the Hong Kong dollar having inflicted upon Hong Kong the kind of miseries that you are seeing on a day-to-day basis? They don’t have any way of controlling that plus once the United States says we are taking Hong Kong dollar out of our yearly agreement, who knows where that dollar value will go. So, there are lots of questions. So what they did, in my opinion, I could be wrong, Sridharji will set me right is that they have to use this thing called a third digital RMB and they say that for the digital RMB based transactions. They are going to put the money in an escrow so that anybody who’s supplying product doesn’t have to worry about being paid as long as the supply of goods happens correctly for that in cryptocurrencies, there is something called as  Smart Contract that can ensure that the seller gets paid that is the biggest concern. This is I’m oversimplifying it here to really understand that the nitty-gritty details of the grand strategy of China’s RMB plan. Over to Sridharji, I’m sorry, I took a little longer than I thought but I needed to put the thing in context over to you, sir.

Sridhar Chityala: Great. I think thank you so much and you have set a wonderful context in terms of the evolution of the journey where we have come to. I can actually go back and I was one of the authors of the papers which is Monetary Currency Union versus Economic Union and all the challenges that Europe is facing but, anyway, set that aside because this could be a one-hour topic by itself. We got two topics to cover.

I think Sree Iyerji has set the context in terms of why? It looks like several building blocks that China has been meticulously planning, one of the great things about China that we all have acknowledged is meticulous planning and maniacal execution. They don’t have one set of Pathways to get to the outcome, they try to do it in different ways. So then, if you kind of set that into motion, which should Sree Iyerji laid out to say that they’ve been looking at this currency issue for quite some time. They have also looked at the Duality which is namely by integrating now Hong Kong more or less fully into mainland China when I use the word fully there’s some hope that it may gain independence or have an extension but, it looks unlikely at least in the recent past so, Hong Kong is done.

So, Hong Kong dollar, so, you could have it two currencies Hong Kong dollar in Hong Kong as well as then you can have the Renminbi denominated currency. So, therefore why is China moved in? I think China is basically looking at three important vectors first and foremost important Vector that they’re looking at is in 20 years from today, roughly 54% of the world trade will be happening in Asia or GDP will be happening in Asia. So, if that is the case then why would you want to have the US dollar as a denominated currency for trading number one.

Number two by then US economy will shrink, this is not in your script, the US economy will shrink from 24% to 17% or 14% almost having right now into that, so, therefore, that’s the second kind of parameter.

Third, they want to have a mechanism by which they effectively can control, so, they’re not stopping with Chinese denominated based Renminbi, but, they also look at the next extension which is called as the East Asia Crypto Union or East Asia Crypto exchange.

The East Asia crypto exchange will comprise of four countries and four different denominated nations, or three nations and four currencies Renminbi by China, HK dollar Hong Kong, Japanese Yen and South Korean Won. So, these four will be kind of a unified kind of a Crypto, they can seamlessly trade. When you actually look at the this for East Asian Nations, they do make up a good chunk of what would be the GDP. So, therefore they have carefully calibrated and said now, once we have this we no longer are worrying and everybody has to kind of manage to this particular crypto model and they are government regulated and government-funded. As Sree Iyerji, correctly said you are smart contracts you have an Escrow and in escrow you have pre-funded money. So, money doesn’t need to move every time when there is a trade, the Crypto exchange takes place. I do, Won crypto to you and then you do Renminbi crypto to me and you do Won, you do Renminbi. You do to Yen and Renminbi, so, you can keep on doing this. Whenever you need cash you go to the central exchange and say, I want to redeem X number of won or X number of Dollars or X number of Yen, X number of Renminbi. So, you only do infrequent what you call redemption of value but you are trading continues to happen. So, therefore there is no transaction cost, there is no transaction risk. Everything is a ledger and also there is no currency fluctuation. This is not subjected to the vagaries of currency fluctuation and doing hedging contracts, which is to say whether there is any manipulation that is taking place. It’s very similar, I go to your bank, I have $1,000 and then I go I give it and I get some kind of a coupon. I go on a kind of using this coupon until the thousand dollars run out or I go to the bank and say now I’ve done enough work for the last 20 days. Can I see what is the balance and that I wanted to be cash and put into an account? Even furthermore examples that we go to Las Vegas, you have chips, you go in and put a deposit, you got a whole bunch of chips. Now you can go on gambling everywhere that you want if you want you can even use the chip to go and eat and then when you finish, you know, three days, five days or seven days later. You take this chip at that fellow gives you whether you want Dollar or whether you Pound, whether you want this, he will give it to you. Exactly the same model and there is no transaction cost for all the games that you kind of play. This chip is moving around. So, China has a kind of incorporated this and a vast number of the GDP value will be in two specific categories of transactions. Government to government business and then business to government and government to business, retail transactions are relatively small when you compare the volume of trade that kind of happens. So, what is the best mechanism? The best mechanism is to come up with the crypto model. Why they are not making it into retail? Retail as inherent fraud has challenges. Then, you have to build a new network. You have to get permission from the Central Bank’s, there’s a whole vagary of things that needs to happen. If you want to have retail-based a crypto Network model. So, hence China has a broad strategy in terms of making this happen.

So, how are they going about doing it? They’re going about doing it by building the infrastructure first, and then they’re implanting the Renminbi on top of it. So, the first thing that they have built is what we call as the Belt Road, so they have linked down the Belt Road stuff. The final thing that they’ve built is the digital cable link. The digital cable link is the last piece of the puzzle that they have built which is connecting laying physical cables. There are two types of cables; one is the PEACE cable which connects Pakistan to East Africa to Europe, that’s what is PEACE stands for. Then, you have the conventional cable which connects and all made from under the sea. So, you have the digital link that is established which is on the back of the Belt Road, which is also now they have added, a rail link to connect Iran, Pakistan and Turkey into the Belt Road. So, you have Belt Road, you have the digital Island, digital link or digital Beltway. Then, you have the Rail Link. We all know, we have talked enough about the South China Sea. So, the South China Sea covers the ocean the maritime part of it. Now, they are also fighting another battle called the Mekong River and the Himalayan battle with India and they’re fighting the Mekong with you know, Myanmar and Thailand more specifically Thailand. So, the whole goal is to connect all the trade ways and then coming with the last piece of the puzzle together, which is the Renminbi. This is the rationale of the Renminbi coming in.

India, which was reluctant, is a very good article that Sree Iyerji has written and posted in PGurus. You must all read that article as to the genesis of the Indian Crypto and India was very clear that it is not going to do retail and they were banning, the Bitcoins and Ethereums and that kind of stuff. So India is now saying, you know, India is going to be by 2030 on PPP which you don’t find here 41 trillion dollars. It would be the second-largest next to China. China is about 70 trillion. I’m just repeating these numbers in case you want this data, I can share the data and Mr. Sree Iyerji will give you the links to these data. So, therefore, so India believes that time has come for it and it doesn’t want to be dealing and being stuck with Renminbi given the creative tensions that India enjoys. So, now they are going with the right approach which is a government regulated and government denominated Indian rupee Renminbi, and I think that’s going to be floated in the Indian Parliament as part of the budget session and that provides the framework for them to basically do exactly similar that what China is attempting to do. So, where will be the trading block of India if you carefully see in the East Asia trading block you have China, Japan and Korea. They have avoided Taiwan, they have avoided Vietnam and they have avoided some of the Southeast Asian countries, ASEAN countries. So, India is saying now maybe with, I will form an ASEAN and quad kind of Renminbi structure which will include Taiwan, which will include Thailand, which will include Vietnam, which will include countries like Singapore and so on and also Indonesia. Indonesia on a PPP basis will be one of the six large economies in the world by 2030 and 2050. Somewhere hanging around that is Turkey. That is why Turkey is lurking with China as opposed to the other group. So, you have now potential for an alternate coming out of a new Crypto model from India, which is India denominated. India may form a block to start within the South Asian region of Nepal, Bhutan, Bangladesh, India Sri, Lanka Mauritius, and from there it may kind of extend itself into its major trading like Taiwan Vietnam, Japan and so on and so forth. So the genesis of Indian Crypto has identical bearing very similar in terms of government denominated and managed and monitored by Central Banks. The other important things that one has to understand is it is called as the issuing of currency and holding value and the seigniorage that comes with it is only by act resting with the Central Institutions of the world. It doesn’t matter which Central Bank FED, Indian RBI, Reserve Bank of Australia, Bank of England all of them have the mandate globally to issue and manage the store of value which determines the financial stability of the world. So, you do not want to create another currency which is outside its limit creating systemic Havoc. So that is the background of China as well as India coming into play.

Sree Iyer: Well, how is this impacting the United States Dollar which is the reference currency for the world today. And if you notice the United States has not come up with its own version of digital currency. Although attempts were made, in fact, Facebook had its own initiative, but all that was torn down in a hurry. I’m just giving you a quick context here. Where do you think the United States stand or should we first look at the United States stimulus deal deficits and so on and so forth to get an understanding of why perhaps China in striving to move away, not only itself but also move the world away from the United States dollars. I am making the connection I could be wrong. You can set me right. With your permission, I’ll start putting up the stimulus-related data.

Sridhar Chityala: Great great. No, I think you should move ahead because I can understand you’ve been anxious to speak about this data and we have been missing the time slots. So, if time permits will come back to the US block Ledger or the US Blockchain-based crypto model as opposed to formally floating are Remenbi type or Indian Rupee type crypto.

Sree Iyer: So, let’s take a look at the estimated deficit impact of the major Covid programs. Viewers, what we have in columns are the different initiatives that were started by the United States government. First one is the family’s first, then, the CARES act, then, the PPP HCE, the Response and Relief and then, the total. So, these are the columns and each of these resulted in money being a portion to the rows. First one is a small business than to support unemployment benefits, then, you had the recovery rebates, then, you add the health care spending and then you had the state and local aid and then you add this mysterious thing called other spending and we now come to a total of we are looking at 3.415 trillion dollars. Now, these 3.415 trillion dollars, you can see it adds up nicely when you add the total covid relief cost because you have had so far for and by the way this does not look at the upcoming 1.9 trillion that President Biden is trying to move that is not even looked at. We’re just looking at what have we done so far where has all the money that was put into the system a portion to because there is no document that exists to this kind of clarity until we chanced upon it and we wanted to spend some time explaining to the viewer how much the US has put money into the system now in order to combat the pandemic. Sir, take it away, where would you like to start?

Sridhar Chityala: It’s a great slide, we are maniacal in the United States about numbers. The number is what differentiates or what tells us. I think one of the things that we can do is we can actually take these numbers and incorporated into the FY20 balance sheet, will come to that in a minute. The most critical thing that needs to be looked at here is the CARES act was 1.9 trillion dollars and then the Family’s First was the 224, that’s roughly the 2.1 trillion dollars. If you all recall was the first tranche that was released that is Family’s First and CARES act 225, 915 billion. Then, we found that the small businesses quite a few of the small businesses had not received and these thing’s kind of ran out very quickly. And so, the second tranche of 355 billion dollars was released that obviously compared comprises of the healthcare as well as the PPP program. So, that’s why it’s called PPPHCE, which is the Health Insurance Enhancement Act so or Health Coverage Enhancement, PPEHCE which comes with your payroll, a part the money gets deducted and then if you are above 20 and then he’s paid towards the healthcare that’s a 100 billion dollar rebate that was given to that. So that was the extension of that 355 billion. Then, we had the 915 if you recall we had reconciled almost to the tune of about you know, the last 55 and then we set the last 55 is roughly this number but, we found when we went back they redid the numbers. For example, we couldn’t find the way that 370 billion dollars.  The 370 billion dollars was allocated to State local aid, then, they unbundled 300 and gave it to small business and only gave roughly 85 billion to State and local aid so, where do you see? When you see in the column response, the first line item is 300 and then again state and local aid, you see 85. So, 385 that’s out there rent it up.

And how we got this 385? We got this 385 because Janet Yellen said, hey, you know, we are allocating close to 300 billion dollars to small business. We said, where is the small business? We don’t see it in the original numbers, so, they reject. The unemployment benefits of 120 the recovery rebates which around this small $400 checks that were issued is 165, the Healthcare 70, we could reconcile and then, we had the state and local aid that was decoupled. Then, we come to this other spending, there’s a whole bunch of numbers that are sailing in this 135 billion dollars. We’re still working our way through you know, where is this, Green act and where is all this money that was being given to the overseas, where are they hiding these numbers? So, we’ll get to that we’re almost there. But, the objective is to kind of point out 3.4 trillion dollars is now fully identified and the next sheet will show you how it is incorporated into the full year 20 plan.

Sree Iyer: Sir, moving to my next sheet. You have the fiscal year totals here and I have so, broadly, we have the different categories budget areas. Then, we have the numbers comparing the fiscal year 2019 with that of the fiscal year 2020. Sir, take it away.

Sridhar Chityala:  Yes great. So, if you actually roughly take this numbers, you can see that the two numbers of three numbers which remains more or less static and moves upwards are the Social Security that Medicare and Medicaid three big line items in conjunction with Defense. So, therefore those three items kind of remain, you know static. For the full year, the rebates are about 275 billion, when you go back to the previous sheet, you will find those numbers. Corona relief 149 billion, Unemployment 476, you see the small business was only 0.5 or 500 million. It is now close to five 577 billion that is incorporated, so the number went from 4.4 trillion dollars to 6.6 trillion dollars.  One can ask the question when you have added 3.1 trillion dollars, how come you have only factored this in? The reason is many of the stuff that was given in December 900 billion dollars. A lot of it is going to spill into 2021, so, we will be capturing that in 2021 though it was budgeted and to be allocated in 2020, part of it in 2020 and 2021. So we have now fully allocated the number which is the $6.6 trillion, which is incorporated into the full year of 2020. One of the important things that this is about, I have my friendly discussions with my colleagues in India on this specific topic that is the United States very much runs its book of accounts or runs its balance sheet like a true balance sheet, which is receipts and expenses. When you take a look at the interest on that debt in 2019 if you recall we had mentioned our debt was around $23 trillion in full-year 2019, $376 million is the interest on the debt. When you take a look at FY 2020 when our debt has grown to $20 trillion, this number is something that we have shared with you. The interest is $345 billion has added $4 trillion dollars. You will find even in the next year there will be a small decrease. Why? Because the interest rates are going to be 0.

This is where we were projecting the numbers of what a 10-year yield and what a 30-year yield is. The 10-year yield is around 1% and the 30-year yield was around 1.68%. This is the yield that the government pays. So what they’ve done is they’ve intelligently rebalanced their existing debt and brought the interest cost down to that extent money is available to them to spend on the other items in the balance sheet of the government. This is one of the vintage things that here in the United States, especially most of the treasures have either come from a Citibank or Goldman Sachs. Steve Mnuchin is from Goldman Sachs. Jack Lew, the previous treasure is from Citibank. Of course, prior to that, there was Geithner who was from New York FED. And then the present Governor Janet Yellen is from California. So therefore historically you find that many of these people come from the banking side. So it’s very much looked at, how do we balance the books? And how do we roll that debt? How do we constantly roll the debt?

Roughly in translating this, our interest cost typically is around 3-3.2% of the GDP. So if you’re talking about a $20 trillion GDP, your interest cost is roughly around $650 billion or $660 billion. 50% of that is what we are paying today, is a reflection of the rebalancing and is also a reflection of the interest rates being zero not only for 2020 but 2021 and maybe even for 2022. We could be looking at, that is the FED remarks. So we finished 2019 with a deficit of trillion dollars, a deficit of trillion, and then we finished 2020 with a deficit of $3 trillion. That’s why we went from $23-24 trillion to $27 trillion asset without factoring in this new debt that is going to be added that Sree Iyer alluded to the 1.9. MInd you, that’s not the end, we got Paris Accord, we have Green Act, we have the whole raft of other numbers, like environmentally safe buildings, etc. So you got another two more trillion dollars to be added which raises the question that Sree Iyer has been alluding to, at $31-32 trillion dollars on a $22 trillion GDP, you can see the consequences that dollar has in terms of discounting and when the dollar discounts. There is going to be a problem for other currencies to asymmetrically move.

So I think the world is saying if this is the debt of the balance sheet of the US government on a progressive brace, then we have a problem in terms of dealing with, the weaker the dollar, many of the trading partners are going to struggle to stay competitive as an export partner of the United States. That’s the basic challenge. US Products become competitive whereas the importers or the place from which we import becomes non-competitive. So, therefore, that is one of the theories that people are scared of. So moving to the final slide in this.

Sree Iyer: Sir. I just want to touch upon one thing before I move to the final slide. So viewers what you are seeing now is the total spending versus total revenue. Sridharji alluded to this. I just want to point it out on the screen because the screen has a limited real estate so I can put everything up at the same time. So you can see that the revenue for 2019 was 3.5 trillion. And the revenue for 2020 is 3.4 trillion. So the US economy is more or less the same and but the spending has gone up in 2020 and therefore, how does this look for the deficit, the deficit has grown from 984 billion in 2019 to 3.1 trillion in 2020, an increase of 218%. We have done all the math up until now.

Now let’s take a look at how the economy has performed in the United States. So here is how that looks like. Sir, I have the v-shaped recovery chart now. I’m just I’m sorry, I’m taking a look at the screen waiting for it to come up on my computer. Well, there are two other numbers which we would have done but we have done only, one is called the impact analysis. What is the fiscal impact analysis? When you take a look at the fiscal impact analysis, how fast all these numbers that we put in, what kind of impact it delivers in terms of re-tweaking the GDP. When you look at the chart that you’re looking, I think it is on your screen. Again nobody wants to give credit to Mr Trump, nobody, because there he is Trump? If you take a look at that chart very smartly, then you will see that there is a ‘V’. In six months because of this big stimulus that was injected, that is 2.1 to a 255, 1.1 and then the 355 additional, it is that which gave impetus to the businesses and put money in the hands of the people in two quarters. When you look at that red chart or red graph you see that it has almost come back to the normal. The normal is the blue line at the top, and the dots are the convergence path towards the blue line.

So just to give you an empirical number, we finished 2019 at $21.43 trillion as the GDP with a projected growth of about 2.5% for 2020. Originally pre-pandemic. Then pandemic came in and through all these stimulus programs and the debt addition the impact that we can see here is we are now contracted only 2.3%. So we will be around $20.8 trillion roughly about $600 billion short of our target and this economic, fiscal impact of the stimulus thus far, without factoring in the other $2 trillion that is likely to be we will converge. We will add about a trillion dollars in three years 2020, 2021, 2022 and by 2023 we will be back on almost converging to the original trajectory that we have. That is the projection, that is the impact of the rapid impact of a largely directed stimulus, which we have been stating when we presented this budget numbers, but the graph here gives you the vintage indication of those numbers. That is very very important. So, totally we would have added $1.4 trillion to achieve this number. How did we get this 1.4? $1.4 trillion is got going from 21.4 to 20.8 and then going back to about $22-23 trillion. Delta 1.4 is coming from the impact of the fiscal stimulus. So that’s what you see in that specific chart. Now, what you may not see is, this is what the GDP will look like. In 2019, we finished at 21.4, 2020 is 20.8, 2021 will be 21.921 roughly and 2022 will be 22.967 because we are expecting 4% growth. According to FED 4.3% growth in 2021. According to Goldman Sachs, we’re expecting 5%. So if you had 5% to20.8, you can see why we are adding close to a trillion dollars and getting back to that big number of 21.921. If you recall Sree Iyerji himself had said we won’t be reaching 2019 before 2022 but because of the positive impact of these two stimuli, the multiplier effect on the economy has been very good, which is the reason why we are getting past the 2019 number in 2022 itself rather than 2023. So this is the explanation of that specific chart that you see

Sree Iyer: Sir, this is a fascinating conversation that we are having right now. We’re looking at the way the deficit is being built up by the United States and what the other countries are going to do. So the one question that a viewer has asked and his name is Sachin Jangra and he wants to know if you see any changes in the International Monetary System that were agreed to in Bretton Woods in 1943.

Sridhar Chityala: I don’t believe that there will be any changes to, Bretton Woods itself is very highly contestable kind of a topic. That’s a separate discussion, but I’ll give a simple answer. We won’t deviate from any changes to the monetary and economic stability system as agreed to. What we are simply doing here is taking away three important elements, one element that is being taken away is the Economic Czarship, whether you can use currency and trade as a mechanism to hurt some of the nations that is possible. That’s number one. For example, if Iran wants to trade with China and the US dollar is the trade mechanism then they may say ‘well, you can’t trade, because you have to have the US Dollar.’ So basically, is that a fair model? Probably not. Is that an unfair model? Probably they will say it is because the reason is if two countries are willing to work together, so I think that’s one thing that is likely to emerge as a result of this kind of blocks.

The second is the whole exchange of value, which is a very expensive process in terms of, Global Clearing and Settlement Systems for Trade that can be minimized using this specific model. That’s number two.

Number three is that whether there are going to be changed in terms of the settlement mechanisms. The answer is yes. If you are a Euro Crypto you have to settle only in Europe. If you have East Asian crypto which is followed, mind you, all these rules adhere to the Central Banks. Because all the Cryptos here are regulated by the Central Banks and the government. So Chinese Renminbi is going to be Bank of China, Bank of Japan then, Central Bank of Korea, then you have Reserve Bank of India, then you have Fed etc. So, therefore, to answer his question, you don’t see changes, but you clearly see more in the trade flows and trade execution of contracts there is going to be a considerable amount of savings coming out.

I just want to answer one last question, you had asked me the question, how does it matter in the US? The United States is going to be a much more blockchain, block trade type of a model which is effective, it’s like a token, which is I have a billion-dollar token, you have a billion-dollar token, so you don’t need to create a currency because it’s a bank to bank system and banks settle amongst themselves here. Unlike the rest of the world, we use in the United States what is called a net settlement model. A net settlement model is I owe you some money, somebody else owes me some money and then I owe somebody else’s money, net today if I only owe somebody this much, so I determine what the net is and I exchange it with only one person. So in other words, A owes B, B owes C, then B, you take my money from C and then, I paid you. So whatever is left is in his last with me. Then the B says I owe somebody else, then A gives. So we only do netting here, we don’t do the transactional amount of execution whereas, in the rest of the world, A pays B, B pays C, C pays D, D pays A, so everybody has to settle with everybody else individually. There are pros and there are cons of that specific model whereas in the United States we use what we call as netting based settlement model. So that is the reason why we use The Ledger, the Block Ledger and we may use a pseudo currency and at the end of the day, that’s what determines, we don’t need to move money.

Sree Iyer: Thank you very much, Sridharji. And in summary, I just want to leave us with one question that I’d like to ask you, sir. Now, if you look at the last few months of Trump regime, China started imposing more and more curbs on Hong Kong and the one step that was expected of United States was that it would announce that it is formally delinking itself from the Hong Kong dollar or the other way around, it is delinking Hong Kong dollar from the United States dollar. Trump did not do that. Do you see Biden doing that and if not, what are the countervailing forces that are preventing the United States president from taking that step.

Sridhar Chityala: Well, I think that there is more pressure from non-Chinese countries to have the US dollar predominantly West Asian countries and Japan because West Asian countries and Japan are very significant trading partners. The United States is a very significant trading partner, you know up until recently before China came into Horizon because of energy trades was West Asia, Saudi Arabia and you know, Kuwait and UAE

And so on and very similarly Japan, so, of course, EU is another one and EU’s common Euro has only now come into with the SEPA (Separate  European payments area) as kind of converged before SEPA, we had another kind of a mess in Europe. So I think the US would like to get rid of the dollar and get two gold right. This is the fundamental philosophical difference between the Republicans and the Democrats. I think Democrats tend to still you know have a flavour towards the dollar which by the way the world believes it whereas the United States is why the hell do I need to kind of keep this and move this agenda along. So, the Republican view is very much around moving to a gold type of a currency, which is so it gives the freedom. Basically, it gives them the freedom to toggle the currency, it says I’m not able to toggle the currency, and whereas everybody else is doing it. And I’m comparatively advantaged or disadvantaged by linking myself to my own currency, which I can’t kind off depreciate. So, I think that’s the basic kind of a premise but, I think that as we look at the next, it is very difficult for people to yet internalized the day when the United States becomes 14% of global GDP from a 27% Global GDP. Today’s India’s GDP as a global share is 3%, in 2030, it’s going to be about 8% on nominal GDP. On PPP, it’s quite significant. So, the story is that when you imagine in 2030 if you use PPP as a measure, India will be the number two economy in the world at 41 trillion and the United States will be around 32 trillion and Japan relegated was that that just gives you the dimension of the changes to come in the monetary system because the economic system has changed the monetary system. So, what kind of transactional engines that you would build to support such a type of model is what we are beginning to see evolving in conjunction with all these stuff that is going on in RCEP, transatlantic CPP all this type of stuff that is going on adjacent to this currency stuff that is happening. Plus, then you also have AI, 5G, cables. Then, you have EB batteries. So, you have a whole plethora of adjacent ecosystems, which is going to drive the Future model. So, this is where I have difficulty with the United States as we sit today.

China is just launching an auto park or electronic park with 350 billion dollars invested in creating the electronic spares park decoupling from the United States. We’re going to spend 450 billion dollars to join the Paris Accord. It’s a waste, only it looks like only the United States has to somehow save the world while the others to ride and others are building on economic systems, whereas we are going down the gurgle. This is something that I’m writing about which is to say that hey, you know, we have a problem here 2 trillion dollars should be built in reindustrializing and coming up with all these new stuff and allowing non-china-based trading blocks to come from Taiwan, we encourage Vietnam, we encourage Indonesia, we encourage India, we encourage your Thailand, we put more stuff into Japan because Japan is kind of stagflation. So, that’s what the focus ought to be rather than Paris Accord and green initiative and so on and killing all the industries that we have here. This is where you know, I have a personal problem. Of course, somebody will like you sir the butterfly effect, you know, if you do this, the weather will be this that will be this and things will be this and I may not be alive to see those kinds of things like the Chinese are kind of, you know building away.

Sree Iyer: So, before we wrap up this session sir, R Swaminathan has a question, as the USA is building a deficit of 3 trillion, how is this deficit being funded by debt or is the United States printing currency notes? What are your thoughts?

Sridhar Chityala:  It is Debt

Sree Iyer:  And this debt is being serviced by a very low-interest loan.

Thank you very much Sridhar Chityalaji. I know you got your voice back. I don’t want to strain it we have had a most fascinating session because many people will talk about these instances in isolation. Nobody is trying to look at it from a global picture and say okay these are all the moves. This is how these things are going to share. We are forecasting a few things for the next few years, how right we are, how wrong we are, we are not going are going away anywhere, we will be with you. We intend to make this thing a regular part of our programming and please do subscribe to our channel. Do donate to our cause and we’ll be back again tomorrow at 8:00 a.m. Eastern standard time for our Daily Global Insights (DGI). Thank you very much Namaskar and see you tomorrow.

Sridhar Chityala: Namaskar and thank you.

 

References:
1. Breaking Down $3.4 Trillion in COVID Relief – CRFB.org
2. What’s in the Final COVID Relief Deal of 2020? – CRFB.org
3. A Closer Look at the Record $3.1 Trillion Deficit in FY 2020 – CRFB.org
4. What Do Today’s GDP Numbers Tell Us About the Output Gap? – CRFB.org