Yesterday, Today, Tomorrow

This is an archived version of the PW Sources newsletter from Saturday, May 27. Sign up to receive PW Sources directly to your inbox here.


Since the invasion of Ukraine, a growing financial alliance between Russia and China has prompted discussions around threats to US dollar hegemony. But despite the rise of the Renminbi and other currencies, many argue that the dollar remains dominant.

In a 2014 article, CARLA NORRLOF examines the power structures that have made dollar hegemony “persistent.”

From the text:

“By threatening, rewarding or persuading countries to choose a strategy other than their preferred one, the American government can preserve or raise private use of dollars as a unit of account. For example, as the single most coveted export destination in the world, the United States can threaten market closure, or promise increased openness, to incite others to open their markets or allow American firms to invest or open subsidiaries abroad. The United States could put pressure on other governments to adopt the dollar as the official unit of account by providing incentive to track the dollar. One way to achieve this would be to encourage ‘dollarization’—the wholesale adoption of the dollar as medium of exchange, unit of account and store of value—within a local economy so that the dollar would effectively become the official unit of account. In other cases, the United States has applied pressure to convince governments to adopt an alternative unit of account—for example loosening the renminbi’s quasi-fixed exchange rate regime against the dollar by branding China a ‘currency manipulator’ a threatening trade retaliation.” 

+  “The renminbi’s share of trade finance has more than doubled since the invasion of Ukraine.” A policy brief by Otaviano Canuto. Link.  

+  “For China to upend the dominance of the US dollar and replace it (even partially) with the renminbi would require major —and probably disruptive —changes in China’s financial markets and monetary policies.” Michael Pettis in 2022. Link. And a recent Foreign Affairs piece by Norrlof questions the probability of de-dollarization. Link.  

+  “If we are in a new era called Bretton Woods III, it is the most weaponized form of the global dollar system yet.” Mona Ali’s 2022 essay in PW. Link. And for more on dollar hegemony, see past Phenomenal World essays by Yakov Fegyin, Dominik Leusder, and Herman Mark Schwartz Linklink.


Agricultural shocks

PIERRE E. BISCAYE is a PhD candidate in agricultural and resource economics at UC Berkeley. In his job market paper, he explores the 
relationship between agricultural shocks and conflict across Africa and the Arabian Peninsula.

From the abstract

“This paper tests the importance of changes in opportunity costs related to agriculture on the risk of violent conflict using data on locust swarms and conflict collapsed to annual 0.25 (approx. 28km2) grid cell observations across Africa and the Arabian peninsula. The identification exploits exogenous local variation in locust swarm exposure driven by patterns in swarm movements together with weather controls and grid cell and country-by-year fixed effects to identify causal impacts of these agricultural shocks. Locust swarms decrease the likelihood of violent conflict event in a given year by around 20%. Effects are driven by areas with crop and pasture land, and there is no evidence of conflict spillovers to nearby areas. The impacts are largest for swarms that arrive in the off-season or planting season for major crops, based on national crop calendars, and the patterns are not consistent with effects on conflict driven by changes in conflict opportunity costs related to agriculture. This points to the availability of non-agricultural livelihood opportunities and to alternative factors such as psychological impacts and relief efforts less often discussed in this literature as crucial in determining whether an agricultural shock increases conflict risk. In contrast to short term negative effects on conflict, cells affected by the 2003-2005 major desert locust upsurge were 62% more likely to experience any conflict in a given year afterward.”

+ + +

+  “By removing incentives for market makers, regulators are harming market liquidity as we know it.” New on PW, Elham Saeidinezhad interviews Doug Cifu, the CEO of Virtu Financial, on newly proposed SEC regulations. Link. This interview is the latest from Saeidinezhad’s new series on market microstructures, examining the origins of financial crisis and market stability. Read the rest of the series here.

+  “The ECB’s 2009 refusal to support struggling member states stands as an exception in twentieth-century central banking practice.” Also new on PW, Will Bateman and Jens Van ‘t Klooster on the now “taboo” practice of monetary financing—issuing public money for public expenditure. Link

+  On Tuesday, May 30 at 12 pm ET, join JFI and the Center for Active Stewardship for a conversation on “stewarding” the energy transition, featuring Madison Condon, Benjamin Braun, and JFI’s Nolan Lindquist. Register here

+ “The LA Department of Water and Power must make large scale investments into developing both new generation sources and capacity. This is a significant financing challenge that could be a major, or even exclusive, purpose of a Los Angeles Municipal Bank or Lending Fund.” The latest from JFI and Berggruen’s joint report series, by Yakov Feygin, Chirag Lala, Leila Lorenzo, and Patrick Robbins. Link

+  Luisa Palacios on the ESG risks of national oil companies. Link

+  “With modest income differences and virtually no private wealth four decades ago, China’s inequalities of income and wealth are now almost as extreme as in the United States and Russia.” By Andrew G. Walder. Link.

+  Katrina Burgess and Javier Corrales on “traumatic decarbonization” in Venezuela and Ecuador. Link

+  “A paternalist political rationality, which melds paternalist logics in neoliberalism and the government’s Hindutva civilizationalist politics, underpins India’s flagship economic policy.” By Priya Chacko. Link

+  “Target countries are not the only ones feeling the economic effects of sanctions: senders also pay a price.” By Jerg Gutmann, Matthias Neuenkirch, and Florian Neumeier. Link

+  “In the Mughal military establishment, the responsibility for maintaining soldiers, war-animals and servants was delegated to the rank-holding officials of the state (mansabdars) on the basis of guidelines issued by the imperial administration. The officials held a dual rank (mansab). Their personal rank (zat) denoted their position in the administrative hierarchy by a number (5,000 zat, for instance), and their obligation to maintain soldiers and war animals in their personal contingent (khasa). Their military rank (sawar) determined the number of cavalry troopers (tabinan) they were expected to bring to muster (5,000 sawars, for instance). The mansabdars received separate salaries and allowances for zat and sawar in accordance with their personal ranks, ethnic groupings, the number of cavalry troopers they theoretically maintained or brought to muster and the number and quality of horses (both khasa and tabinan). It was out of these salaries and personal allowances that the wages of the labour force employed in the military sector were paid.” By Najaf Haider. Link

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