Dollar’s still king but with a somewhat shrunken empire

For many decades, international loans were denominated mainly in US dollars, UK pounds, or Euros. Gradually, some of these loans are being denominated in other currencies — principally Asian currencies. The funds may still be spent in dollars, because the dollar still remains the major currency for transactions. (In a recent write-up I noted that ISIS wants to be paid in dollars!)

Nigeria is looking to borrow money from a variety of sources to finance its deficit. One source Nigeria is looking at is China. The loans would be denominated in renminbis. This means that Nigeria’s loan amounts would be stated in renminbi, and interest payments and repayments would be renminbi. No dollar anywhere in sight. Nigeria may spend some of the loan money in dollars, by converting the renminbis. That’s where the dollar may come in.

This will be in addition to what are called as dim sum bonds. These are loans taken by Chinese firms in foreign countries, with the loan denominated in renminbis.

Or, Nigeria may borrow in Japan, with the loan denominated in yen. Again, no dollar in sight.

Indian firms have been trying to borrow money abroad with the loans denominated in rupees. Not yet done, but may happen soon.

So, there is some shrinkage as the Chinese and Indian economies expand.

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