Episode 226 – Putting BRICS Into Perspective with Yan Liang

Macro N Cheese – Episode 226
Putting BRICS Into Perspective with Yan Liang
May 27, 2023

[00:00:00] Yan Liang [Intro/Music]: I do think this BRICS system, loosely defined, is very important. It really represents a counterweight to the neoliberal system that really prioritizes the needs and the interests of the Anglo-Saxon western economies.

BRICS has over 40% of the world population. It’s now over 33% of the world’s GDP. When you look at the old G7, they are only accounting for 10% of the population and 31% of the GDP.

[00:01:35] Geoff Ginter [Intro/Music]: Now, let’s see if we can avoid the apocalypse all together. Here’s another episode of Macro N Cheese with your host Steve Grumbine.

[00:01:43] Steve Grumbine: All right. This is Steve with Macro N Cheese and we are jumping back on the jet airliner and we’re flying back to China again. By the time you hear this podcast, I will have recently spoken with Carl Zha to touch on Taiwan. I will have talked to Dr. Lin Zhang from UMass to discuss her book, The Labor of Reinvention, about the entrepreneurship and the digital economy that China is putting forward now.

And now we’re going to dive into an MMT understanding, MMT framework for China and the look at the reserve currency and what makes for a good reserve. It’s also going to take a look at the impact of BRICS with an understanding of empire and other factors that frequently are talked about in a way that probably gets more attention.

And that’s what the flair of the good spy novel. Everybody wants a little drama. And that’s not to say that these are not important, but it’s going to be more methodical. We’re gonna take a real earnest look at these and to do that I figured what better person to talk to than my friend and brilliant scholar, Professor Yan Liang, who is a post Keynesian institutionalist, she’s also an MMTer and the wife of one of my other favorite MMTers, and that’s Eric Tymoigne.

She is out of Willamette University and she focuses on international trade, finance, financial macroeconomics, and economic development with a regional focus on China. So with that, welcome to the show. Thank you so much for coming back again.

[00:03:22] Yan Liang: Thank you so much for having me again, and it’s always good to talk to you and thank you for that generous introduction.

[00:03:28] Grumbine: Well, it’s true, and I am trying to talk to people that are both adjacent to MMT, people that maybe are not even remotely aware of MMT and trying to get them interested in hearing these things and hoping by attracting parts of their audience that they come back and they get to hear people like yourself who lay the framework out

also for the Modern Monetary Theory understanding of what’s happening in this geopolitical world that we’re living in right now, as it appears to be a big multipolar split with China, splintering off with Russia and the global South, then Iran and Saudi Arabia and others coming to the table. And Central American countries like Honduras who are finding a friend in China. All the talk is about how to get away from the US dollar. And anybody that feels that way, I have tremendous sympathy for, because the US just arbitrarily cut off Russia from the SWIFT system. And no matter what you think of their tactics with Ukraine, whether you put the onus on the US running a proxy war through NATO,or whether you just say, Russia just decided to randomly invade Ukraine for no reason. Whatever your belief is, the economics is what is often lost in this bigger conversation. What is your understanding of what is happening with China? And then we can do a follow up to talk about what this concept of dedollarization is.

[00:05:05] Liang: Right. So I think this is really a long-term process. I think that China and the Global South have really suffered from this neoliberal regime that is pretty much being headed by the United States and allies, the European advanced economies. Especially, I think since the 1980s, I think crises after crises.

So countries in the global south are really in a way constrained. They’re not able to develop themselves. They suffer chronically from debt crises, financial crises, banking crises, currency, crises, you name it. So I think there has been this ongoing move to change the system in a way that would be more stabilized, that would be more development-friendly.

So I think that especially became a more urgent, I would say, initiative. Especially after the 2008 financial crisis. That’s when the first time you hear in public that the Chinese Central Bank governor at the time, Zhou Xiaochuan made announcement that we wanted to reduce the exposure to dollars. And so I think since then they have made conscious choice.

To diversify, for example, therefore exchange reserves and gradually to establish currency swaps with now almost 15, 16 countries, they have reduced the holding of their dollar reserves. That China really started to ratchet up the dollar reserves since 2000, and that reached the peak at 1.3 trillion worth of Treasuries in the foreign exchange reserves in the fall of 2013.

But since then, they started to diversify because again, the great financial crisis has taught them the lesson. If you’re overexposed to dollar and dollar denominated financial assets, you could put yourself in a very vulnerable position. So I think that is, again, a process that is long-term, it’s been going on, but then it definitely got catalyzed

by the recent events, as you just mentioned, that Russia was excluded from the SWIFT system. And not only that, we’re seeing that the United States now suffer from banking crises at the regional level. We have seen this debt ceiling debacle that could in some ways put self-inflicted wound on the US economy and its financial system.

So I think all these serve as wake up calls: this understanding that to challenge the neoliberal system, we gotta work on the monetary system and we’re gonna have to diversify. Now that is different than saying somehow we’re gonna buy another currency, in this case the Chinese yuan, to somehow replace a dollar to become the reserve currency.

I don’t think this is really the goal of the Chinese government and this is probably not really what these other countries are trying to do. What is the point of simply supplementing one currency for another currency as the reserve currency, as a dominant hegemonic currency. So what these countries trying to do is to really establish a multipolar system in the monetary system, along with other systems in trade, in investment, in decision making, in rulemaking.

So there are many other perils in the global governance system and monetary system is one of them. And I would say also one of the most important ones.

[00:08:51] Grumbine: I hear that there are factors based on the US backfilling tax accounts. I don’t fully understand this, but this concept of de-dollarization, we hear constantly, guys like Michael Hudson talking frequently about it and coming up in popular conversations. Even Janet Yellen touched on the term de-dollarization. For folks that are anti empire, anti imperialists that are looking at this, they’re cheering on this concept of de- dollarization that appears to be much ado about nothing. It doesn’t mean that there isn’t something going on, it just means that they’re ascribing these doomsday scenarios and cheering on things that just ain’t

so, I would like to take it a step further. Drama excites people. The more drama, the more excitement, the more eyes get on it. So the MMT approach has its challenges because the more dramatic view of the world is a far easier sell to people. They know things aren’t right, they’re concerned, they’re worried about their own lives, and when they hear drama, that’s gotta be true.

There can’t be a more simple answer. But MMT is all about simplifying the complex. So, what would you tell someone who sees this and is terrified that suddenly the US is going to have to pay 200% higher for goods and services because suddenly the world has lost faith and confidence in the dollar and is de-dollarizing.

[00:10:34] Liang: Right. I think you are really getting on this understanding of very different debates and the different interpretations of what the de-dollarization means and also what the implications are. So it is a very complex topic. Not to mention it adds more challenges when the Bitcoin community, the crypto community, jumped on board and said, maybe de-dollarization means we’re gonna use Bitcoin or many other types of cryptocurrency.

So a lot of these financiers don’t necessarily help to contribute to the clarity and also the complexity of the debates. So I think the way I understand it, and I think I heard a lot of what Michael Hudson has has been talking about and I read his books and I think I agree that there is a need for the multipolar system to have multipolar currency systems.

In other words, we don’t want to have the so-called dollar hegemon this dollar dominance in the global payment system. So yes, the dollar now is still over 80% of the global transactions. Over 60% of international loans and debts, and it’s close to 60% of the foreign exchange reserves. So we acknowledge that the dollar has been a reserve currency and main vehicle currency for almost 80 years.

And some people say, well, this only happens in 1970s and that it’s not really true. I think starting with the establishment of The Federal Reserve in 1913, and by 1920 the dollar has almost obtained a equal status, a position as the pound sterling, and it just getting more and more prominent and more powerful since then.

So it has been a long-term process and a lot of the mainstream explanation for why the dollar has maintained its power always point to things like, oh, this is the stable currency. And this has deep financial market backing and it has a credibility and so on and so forth. But I think none of this really explain the reason.

So this is more like a circular reasoning put forth by people like Paul Krugman, but definitely find an audience in some of the Keynsian or post Keynesian groups like Michael Pettis. This is basically to explain the acceptability of dollar by its acceptability. It doesn’t really get to the institutional setups and all these different policies or the evolutions of institutions and the global system to really explain why the dollar has become so dominant.

So we can go into the details, but I think just going back to your question, I think what most of the people when they refer to de-dollarization, all they’re saying is we wanted to maybe dilute the dominance of the dollar in the global payment system, in the global financial system. And I think this is definitely a positive direction that if we’re able to create a multicurrency system, again, it’s not like some people will say, we’re just gonna put the dollar to demise.

We’re just completely destroying the dollar, we’re gonna dethrone the dollar, or we’re at this tipping point. But I think what they really wanted to say is we wanted to have different systems in, for example, regional trade settlements. We wanted to have different currencies when we made international lending.

And I think this has been something that is going on, but that does not mean we’re gonna replace the UN to become a reserve currency, to become a dominant currency, to replace the dollar. If anyone who said what I mean, de-dollarization is we’re gonna replace a dollar with a yuan or replace dollar with Euro or whatever the currency might be.

I think we really need to question the validity of that argument, but also the consequences of that if it ever materialized. Now, when it comes to the implications of that, and again, I think there are a lot of debates about it. I think eventually in the MMT community, we understand this idea that if the dollar is not having that dominant position it would mean the US is not able to sell their treasuries, for example, or they’re constrainted in their financing power,

we know that it’s not true. We do understand the US federal government, it is a monetarily sovereign government. It will be able to sell its treasuries if they choose to sell, and it’s not going to affect the fiscal spending or the financing. And we know that fiscal spending is self-financed for a monetarily sovereign government. But we understand in the MMT community that net import are a real benefit for the economy.

So if dollar becomes less acceptable, this may in some ways reduce the US’ net imports. Then we can also debate is this really a true benefit to the United States or not? Because that debate quickly evolves into another debate, which is, it’s good for the US to run trade deficit persistently since the 1970s.

Is it good for it or not? The people who say, well, this is good because these are real goods and services that the US consumers, the US citizens enjoy. But others will say, well, this takes away our jobs. But again, I think this is another topic that we could get into, but I think that this is to say that this real goods and services

are a bonus for the US economy. The question is how we can create jobs and how we could stop this whole financialization process in the United States. Because I think if we don’t work on that de-financialization in the US economy, then we’re not gonna be able to create the kinds of jobs that we desire and provide a kind of real goods and services that are going to be beneficial to the US economy.

So the competition is not about US domestic production versus foreign production. The real competition is between the high financial returns and quick short term risky financial returns versus real productive returns from investing in real production, the real capacity and the real future. So I know I cover many different grounds, and feel free to ask me to go back to any of the points and maybe delve into those points a little bit more.

[00:17:30] Grumbine: Yeah, so I really appreciate the way you did that, because that’s one thing I’ve learned as an MMTer is the force that is required to be an MMTer is so much greater because you have to be able to connect all these ancillary ideas and intersections with other thoughts that others just don’t necessarily do the rigor to pull those in and have a systematic framework by which to analyze it.

But you did bring up something I want to touch on, and that is, Warren Mosler always says that imports are a benefit, exports are a cost, and you’re trading pieces of paper or digits for real goods and services. And within that framework, I’ve also talked to people that say the key to having your currency as a reserve, particularly as a predominant reserve, requires that that country

be okay with doing massive amounts of deficit spending and also be willing to run a trade deficit to be able to allow that money to get out and circulate. And you also need to be able to have a robust financial sector that would allow the very things you spoke of, which is the quick financial returns, which is just not available in these other countries.

It’s a unique thing right now, and they could maybe do it someday, but that takes a full commitment. That takes a lot of focus to pull off. I just wanna make sure I understand because it seems like the key here is high finance and liquidity of your currency getting out to make sure that others are holding it.

And Mosler always says it’s not important which reserve currency is in play. What’s important is the currency people want to save in. What are your thoughts on that?

[00:19:28] Liang: So I think what you are referring to it is what is really right now, being hotly debated. This idea that the well-known Triffin dilemma that a currency is a reserve currency, then you need to make sure the rest of the world has enough of it. If you don’t have enough this currency, then other countries can’t accumulate it, and so then by definition, it cannot be a reserve currency.

So that’s one of the arguments that the US dollar is able to be the reserve currency is because the US is willing to deficit spend. It has over 900 billion dollars of trade deficit last year, and it has been since the 1970s run persistent trade deficits. So then the rest of the world is able to get the dollar.

But the Triffin dilemma says that if you get too much of the liquidity, then your currency is gonna lose value. Then countries will divert away from the currency. So that is the well-known dilemma. Now, from the United States point of view, that’s what some people would call it. This is the exorbitant privilege that because the US dollar is able to become the reserve currency, then this allows the US to run trade deficit.

And you can see again the dilemma here. On the one hand, there’s this a chicken and egg question. For a country that is able to run persistent large deficit, it’s currency gotta be very widely acceptable. Otherwise, people would not want to keep exchanging their real goods and services for your currency.

On the other hand, then you were saying that to be able to become a reserve currency, you’ve gotta have to continue to run trade deficit so the rest of the world can get it. So I think that is very interesting. Again, chicken and egg problem. Do you become a reserve currency first, then you run trade deficit, or do you continue to run trade deficit and therefore you can become a reserve currency?

So that’s I think, a very interesting debate, and to me, I don’t think you would have to run persistent trade deficit in order to become a reserve currency because when you look at the US’ history, the dollar becoming a reserve currency, the major vehicle currency, again, the US did not really run a persistent trade deficit until mid seventies.

In sixties and seventies, the US was running surplus or small deficits, and earlier that it’s also less a deficit country before the 1930s. But there are other reasons for why, for example, the US currency can become so prominent. One thing is it became the so-called petro dollar through 1974 when

the US President, Nixon, at that time had a six page agreement with Saudi Arabia to make the dollar a petro trading currency. And also through the Marshall Plan, where the US is basically financing the Europeans reconstruction and that it’s worth about $150 [billion] in today’s dollar. So there are other ways that I think countries can allow the rest of the world to get hold of their currency without running persistent large trade deficit for a period of a time.

You may not be able to be sustainable over long term because countries eventually need to earn the set currency instead of getting aid or handouts or loans and investments and so and so forth. But running a persistent large trade deficit is a necessary condition for a currency to gain prominence.

Thats not, say, to be a reserve currency, but to gain more prominence, to be used as a vehicle currency, international trade and settlement and payment. So I think that debate is again, quite complex. It is a complicated issue, but a lot of people point at China and say, well, China keeps running trade surplus.

And how do other countries able to get its currency? Well, for trade, I think you could definitely set this regional trade agreement with local currencies. And this is happening right now. China is having these trade agreements with Brazil, with Russia, with Argentina. So a lot of these regional bilateral trade, they’re able to use the local currencies and the new development bank that is the bank that sets up with the BRICS countries, the five of them.

They are also trying to increase their local currency lending. Back in 2019, the president of the bank at that time already, made a statement that they wanted to increase the local currency lending share to 50% of the total loans. So I think there are definitely efforts that can be done to use Yuan or other local currencies in their regional or bilateral trade, or using them for their regional or bilateral lending system.

So that in a way, I think will challenge the dollar status as a vehicle currency. But again, it’s not to say we’re just gonna use another currency to replace the dollar as reserve currency over the long term. I think ultimately for all countries taken together, we still need to really refer back to what Keynes would propose, which is the Bankor system, which does not allow countries to run persistent imbalances and accumulate Bankor. The deficit country and the surplus countries to share the burden of readjustment.

And I think that is a very different system than saying, we just simply replace one currency with another.

[00:25:22] Grumbine: Gotcha. I want to take us deeper into BRICS because this is a huge topic of discussion out there, and I try to be a gateway between the great works of academics and to the fresh minds of, not only activists, but voters and people that are consuming massive amounts of information. Not all of it burrowed in truth.

And I guess the BRICS probably are the biggest of all of them. Next to that reserve currency, including the petro dollar. I was wondering if maybe you could describe the BRICS system. The concept and BRICS stands for Brazil, Russia, India, China, and then you’ve got South Africa and you’ve got other countries

by the day, they’re calling it BRICS Plus now, because there’s so many other countries that are actively applying to try and become a part of this. And clearly I think a large part of that is simply to avoid the United States’ long arm and being able to manipulate and control them. Can you take us through what BRICS is and what differentiates it perhaps from the US denominated system?

[00:26:38] Liang: So I do think this BRICS system mostly defined, is very important. It really represents, I think, a counterweight to this really neoliberal system that really prioritize the needs and the interests of the Anglo Saxon Western economies. These developing countries have very different, I think, priorities and their developmental agenda.

So I think it is important for these countries to have a alternative. Whenever the mainstream tells you there’s no alternatives, we know there is. The more they say there’s no alternatives, the more we need to think hard about what are the alternatives. So these five countries, as you mentioned, they called the BRICS because this is Jim O’neill, who was the CEO of Goldman Sachs back in 2001.

That group is the five largest margin countries together and coined this term BRICS. But the real starting point of BRICS was they had a first meeting in 2008 at the sideline of the G8 and then they had a first summit after that in Russia, just in the following year in 2009. And then South Africa joined in 2011.

So we start with BRIC, and then it became BRICS by 2011. And so you mentioned now that many countries, nineteen other countries are now seeking access or entry to become the so-called BRICS plus. And these countries include some of the very prominent countries, Saudi Arabia, Algeria, Argentina, Nigeria, Mexico, Iran, Tunisia, and so on.

So right now, I think the reason it gains so much traction is because, again, these countries seem to be really working on how to develop a different system than the one that is dominated by the Western interest. So one example is these five countries established a so-called new development banks or the BRICS banks in 2014 with 50 billion dollars as their capital, and they start to make lending and investments in various countries.

They are focused, it’s really infrastructure, ecological preservation, and some other development projects, basic utilities. So examples are around. For example, in 2019, they made investments and lending to, for example, India, to improve their rural transportation. They also lend to Russia to improve the water sanitation projects in Russia’s water systems.

They also lend to South Africa to establish and renovate their power companies and renewable energies. One more example is they lend to South Africa for greenhouse reduction projects. They lend $300 million for that project. So the estimate is by last year, they would’ve already lend for infrastructure funding for South Africa that is worth 11% of the total infrastructure spending in that country.

So we’re talking about really significant amount of money to really important projects that are sustainable. They’re really important for climate finance. They’re very important for infrastructure building. And one important note is also that these loans come with no strings attached, unlike IMF loans to these developing countries.

So that’s why I think these countries are seeing the difference and they are seeking the partnership with the new development bank and with BRICS. And BRICS definitely goes beyond just the development banks. They also have really significant intercountry group trade and so on and so forth. But last year the new development bank also extended the assets funds to Egypt, to Bangladesh, to Uruguay, to UAE.

So, it is getting more traction. It is spending, and countries do see this as a alternative. When you look at, for example, the IMF with Argentina, they made a loan historically the largest loan to Argentina back in 2018, $57 billion. And it required all these kinds of austerity packages: reducing government spending, remain positive interest rates when their inflation rate is over a hundred percent.

They insisted that they need to raise the interest rate to maintain a positive real interest rate. It has been a disaster. And Argentina’s due was more in that debt crisis that hyperinflation, they now lend another 44 billion to Argentina again and again asking for the same thing. Cut your government spending, raise your interest rates.

The same kind of recipe. The same kind of disasters. The same kind of crises. And why they keep lending? Well, because they want Argentina to use this new loans to pay off their old loans. So definitely I think countries understand the peril of these kinds of Western led multilateral lending system or their financial system, and they’re seeking for alternatives.

One last point that I want to make is, it’s super important when we think about the multi polar world, it is not a bipolar world. It’s not China versus the US. It’s not the tripolar world. It’s not China, Russia, United States, or India. It’s a multipolar world because we need the global south to be in the picture.

As we talked about BRICS, it has over 40% of the world population. It’s now over 33% of the world gdp. When you look at the old G7, they are only accounting for 10% of the population and 31% of the gdp, but they have all the say in the global system. In the global rulemaking system, the BRICS countries together only account for 15% of the voting rights in the IMF.

Despite the fact that they represent 42% of the population, they only have 15% of the voting rights. US alone has 70.5%. So I think we really need to change the system in the sense that giving more say to the global south to really understand their development priorities. One thing that again is clear

from the most current events, the Russian Ukraine War, I think it has become the center of attention for United States and Europe. But many of these developing south countries will say, well, what about us? We’re hit by the energy crisis, food crisis, debt crisis, and we need to have a solution. We need to have the alternatives.

And we can also talk about what China’s role is in this global debt crisis. And there’s a lot of misconception of what China is doing here. There’s a lot of finger pointing between different countries between the US and China and between the World Bank and China and so on and so forth. But the point here is, again, we need a counterweight.

We need a different system that would elevate the interest and the say of the global south.

[00:34:06] Intermission: You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube and follow us on Periscope, Twitter, Twitch, Rokfin, and Instagram.

[00:34:57] Grumbine: Some of this is classified information, but as of December of 2022, China had 3 trillion in US dollar holdings in terms of reserves. And I guess my question to you is this, with that much USD facilitating trade between the two countries and whatever other uses they may have, if I was China and being really strategic and I was looking at how I could ensure pretty much a clean sweep across the global south, I would take massive amounts of my 3 trillion holdings,

and I would use it to pay off African debt and tell the US hands off. We’ve got it from here and allow them access to BRICS funding. And that would be how I shut the door on the competition. But there’s a lot of other things there. US has 800 military bases and they don’t even require a real meaningful aggression to go to war.

So I imagine that’s a good deterrent from doing such a thing. But would that make sense? Is that something that China that really wanted to be antagonistic to the US could simply pay off the debt of all those IMF countries and walk away and become partners with those that they had released from the burden of IMF debt?

[00:36:19] Liang: That is a very interesting proposal

[00:36:24] Grumbine: It is.

[00:36:25] Liang: I wanted to make. Maybe just one quick note here. I think, yes, the Chinese foreign exchange reserves is around $3 trillion as of May 2023, but when you looked at, for example, the Chinese holding of the US treasuries, it’s now gone down from the peak of 1.3 trillion to now 850 billion, more or less.

In other words, out of the 3 trillion Reserve holdings, about 850 billion are the US Treasuries. So the rest are not necessarily dollar denominated assets. They are gold, there are other currencies, there are other types of assets. So I think China is making a conscious choice to diversify its foreign exchange reserves from the dollar.

But it is a big problem because they have accumulated so much since 2000. And so now this is kind of like a hot potato. So what do we do? Well, one way is to invest, to use those dollar reserves and invest in different projects. As we know that Belt and Road initiative that was launched in 2013, it’s a multi-trillion dollar project that are investing in various countries in mostly infrastructure, utility, and now new emphasis have been put on

climate finance, climate related projects, and also digital infrastructure. So it was a wake up call because previously because of foreign exchange reserves, they are investing mostly in the US treasuries, earning very, very low returns. But now they understand they need to move away from that. So it is noble undertaking, if you will, if China simply say, I’m going to use all the reserves that I have and help all the other countries pay off their loans and walk away clean.

But I think one is, why would you want to do that in the sense that giving all these in international lenders the returns that they don’t deserve? Mm. As you probably know now, the heavily indebted countries, 40% of their loans are owned to commercial lenders. They’re not even sovereign governments or multilateral banks like the IMF, World Bank.

They are commercial lenders. They are for the money, they’re lending at high interest rates knowing there’s a high risk, and yet they still do it because they know there’s implicit or explicit guarantees from the government. Or they will be, in some ways, guaranteed indirectly by these multilateral banking sectors.

These countries will go in, make sure that they lend to these indebted countries, so then they’re able to pay back the loans again. This Ponzi scheme, using the new loans to pay off old loans. But why would they care? So I don’t think it’s really in the interest of these developing countries to simply say, well, we’re just gonna run your scheme.

We’re just gonna pay you off. We’re just gonna use 15% of our fiscal revenues to just to service the debt. This is how bad things have become. They’re paying back billions of dollars, but they’re still owing billions of dollars because the interest rate are compounding. They’re forced to cut their terms of trade at whatever price that they can find, just because they need to come up with the dollars to pay off their debt.

I don’t think we want these international lenders to get away with the scam that they impose on these developing countries. But also from China’s point of view, they have joined the so-called G20 debt common framework. After the pandemic. Many these heavily indebted countries are at the brink of debt crises.

So China was part of this common framework that is set up at the G 20 basically to give debt relief. They don’t cancel debt, but they provide, for example, postponement or deferral of debt services. So China has about 30% of the claims on the loans of the most indebted countries. So 60 ish countries, I think are heavily indebted and they’re at the debt crisis mode.

China has 30% of the claim on these countries, but China provided around 63% of the total debt relief under the G20 common framework system. So China alone gives around 8 billion of debt relief out of 30 billion total under this common framework. So that’s about 63%. So in other words, China has 30% of the claims, but they make debt relief of around 60% of that total debt relief.

So I think China is playing a weighty role here, but the IMF and the United States, were still pointing finger at China to say this is one of the largest creditors to these African countries. So China needed to do more. What China is coming back to say is we are doing our part, we double the amount in terms of the debt relief compared to our debt share.

But like I mentioned earlier, there are all these international private creditors. They also need to do their part. It does not make sense for us to give the debt reliefs and yet all these international commercial lenders are getting their money back. And I think this is a good point. I think this is reasonable.

This is a point that is I think well taken because how would it work if 40% of the loans, the creditors are these commercial lenders, they need to do their part. So again, I think China can play a very important role and beneficial role in rearrange the kind of international lending system. What kind of loans do you want to give countries. To what kind of projects?

You wanna see these money goes into that really need to boost the long-term resilience and sustainability of these countries economy and the ecological system instead of just getting the money to pay off your own loans. And also, what kind of conditionalities do you wanna tell the countries to do what you think they should do instead of letting these countries have the agency to decide what is good for them.

So I think that is really what we need to be thinking about.

[00:43:03] Grumbine: That’s a fantastic point. I appreciate it very much. Back in the fifties and sixties when you would buy an encyclopedia, they would have huge sections that were done with plastic overlays that you could look at, like anatomy of a body or geography. And if we’re looking at the One Belt One Road Initiative, which I think has turned into many belts or many roads or something to this effect, and then we look at the BRICS, help me overlay the two, because economics is about movement of real resources and there’s a finance aspect of that as well.

How does the One Belt One Road initiative that China has been deploying quite successfully over the last however many years, and this move with the BRICS, how do the two play together?

[00:43:57] Liang: So many countries are part of the so-called Belt and Road initiative. So that does include these BRICS countries. So it is, I would say, much bigger in terms of its investment in terms of the countries that they partner with and in terms of the total amount of the investments. But they share similar objectives, which is we wanna invest in really developmental projects.

We wanna improve climate resilience, we wanna improve infrastructure and connectivity. We wanna improve the real productive capacities of these many countries. So for the Belt and Road initiative, China has, for example, the Asian Infrastructure Investment Bank, the AIIB, which really helped to provide a lot of financing for that Belt and Road initiatives, along with China’s development banks, the import export banks, and also the China development banks.

So there are a lot of financial institutions that are backing or financing the Belt and Road initiatives. There’s also a lot of other, say, old commercial banks that are also providing investments and loans to orchestrate these Belt and Road initiatives. The BRICS, on the other hand, is more regional, so this is among this five countries that they have the new development banks, and now as I mentioned, they extended the assets to another four countries.

So it’s different in terms of the country groups, but they share the similarities in terms of their development priorities and so on. And the conditionalities of the lending, which is basically none. But I think there are definitely parallels. So there are different focus on these different kinds of investments.

And for AIIB for example, they’re also very, I will say, nimble. During the pandemic, they also pivot towards providing a lot of financing for pandemic relief to help countries to get access to vaccines. To help them to improve their health infrastructure and so on and so forth. So I would say these are all under the general initiatives, which is how to promote development finance, how to have more sustainable financing arrangements, how to have more bankable projects to really invest into these countries productive capacities and resilience.

And in addition to these two, I think China now is also really trying to push forth its global development initiative or the GDI, which puts less emphasis on China’s finance per se, but really trying to build it as a more multilateral system to attract more countries to jump in, to invest, to build a kind of partnership.

And instead of putting China at the center front, because that has met various pushback from the Western countries. So I think what China now is trying to say is, We could play a lead role, but we want more countries to chime in. We wanted to give more weight to the global south countries because all these other countries, Brazil, Russia, South Africa, to a lesser degree, these are all very important countries that could make a difference.

And instead of saying, oh, we are all just listening to China, what China wants to do is to say we’re gonna build a more multilateral system to really pivot away from this US-led versus China led the kinds of bipolar system. So I think that it’s really the right way to go. But of course, China is also by way of introducing different stakeholders, different agencies.

I think this also helped to improve China’s own accountability, its own transparency, and also bring more voices to the table, so to speak. So I think this is a good strategy for China and for the global south.

[00:47:54] Grumbine: I am not a Biden guy. I did not vote for Biden, didn’t vote for him any of the other times he ran. I was gleeful every time he lost in the past, and so I didn’t find any value in him being the leader of the free world. And to me personally, I feel like I’ve been justified in that. But from the day he took office, including his very first State of the Union address, Joe Biden took aim at China as the big problem.

And I was blown away by this because as bad as Trump was, I never got those vibes during the Trump administration. He said silly, racist, derogatory things, but I never got the impression he was ready to break out the old Army to try and do things. But that’s not the same feeling I get with Biden. China is the big boogeyman that they’re gonna go after.

What is it about China that makes this administration focus so much on it being quote unquote an enemy? I just don’t understand it. It doesn’t make sense to me.

[00:48:58] Liang: Right. Well, I think first and foremost, we all understand that the US’ political system is pretty much defunct. With really this political divide. The only way that you could get the bipartisan support on any initiatives is to have a common enemy. Ah, and so that enemy was former Soviet Union, was Japan, was Russia, and is China, and will be China in the near future.

This is really nothing new, and we all understand why this is the case. It’s good for their political agenda, it’s good for some of the business community. It’s also good to exercise the kind of social control as Thorstein Veblen has most famously pointed out, that we need this kinds of imperialism, patriotism, we need these kinds of external enemies, so then we could instill this barbarian thoughts into the general public so then we could tell them we are in a war like situation.

There is absolute discipline. There is absolute authority. There’s no question. About any rules that we impose on you because we have this external threat that we would have to be united together. And so that’s why you see China is featured in almost every political debate. I was just talking about this the other day, in terms of the whole debt ceiling debacle, which is pretty much political theater with disastrous economic consequence.

The Republicans are pointing fingers at Democrats and say, Hey, you are lifting the debt ceiling because you are to give the free gift money to China because this is the interest payment to China. So you are doing China a favor by simply wanting to lift the debt ceiling. Then the Democrats, of course, are fighting back to the Republicans and say, well, all you’re doing is destroying the dollar’s reputation in the global economy.

So you are going to, as we just talked about, accelerate that de-dollarization, and this is really a gift to China. The Democrat congressman just published the article in the Hill saying exactly what we just talked about. And so yes, you need this kinds of common enemy to be able to get bipartisan support for any of your initiatives.

So Biden is able to pass the Infrastructure Act. He’s able to pass this chips and jobs act, and every time is China, because if we don’t do that, China is gonna do this and that. If we don’t bail out the banks, then if we don’t de-regulate the financial sector, then China is gonna be the financial guru.

They’re gonna be the world financial power. So we have to do all these things. So I think it’s clear that they wanted to use China as a scapegoat, as a way to push forward their political agenda. So I think that’s clear. On the other hand, I think they do sense in some ways China is growing and is getting more economically powerful and dynamic, and so.

If they do need to find a common enemy, then China will be the best candidate. And so I think that’s what is happening.

[00:52:12] Grumbine: Yeah, this is Cold War narratives and my understanding of the Reagan revolution was really more a matter of how can you deficit spend like crazy without it looking like your deficit spending like crazy. And by doing it through the military industrial complex, everybody breaks out their flags and you’ve got people happy to join parades all in the name of defending the honor of the country and smells tremendously like fascism. Even though you’re an economist, and I try not to take you guys out of your field of study, what do you think about this? What I’m seeing here, the stoking of these Cold War narratives, the authoritarianism, the scapegoating. I looked at fascism, they look very much like the same thing. Is it hyperbolic to say the US is just the full fledged fascist state, or is there something remotely not toxic in this nation? None of the nonsense that they taught us in grade school about the red, white, and blue. I feel like it’s all a lie. And when we demonize China instead of find a way to cooperatively work with China, it just tells me we’re in a really bad place. What do you think about what I just said?

[00:53:31] Liang: Well, I totally agree with you. I think really what weakens the United States and what could really in a way shake this country or undercut this country’s prospect is really, it’s from within. It’s really the bad policies, the bad governance system, the bad leadership, that it’s what make China win in that competition.

I mean, same with China. I think what would undercut China’s prospect is its own misleading policies or the directions that they’re taking. It’s not from external. I think for the United States, I absolutely agree with you. So it’s pretty much captured this country by the financial interest, by corporate greed.

And so a lot of these nationalism, fascism, and undemocratic decision making are all serving the interests of how we can really serve the corporate interests, especially the financial, corporate interest. So I think there’s a fundamental question, I think for the United States when if they really feel that they’re threatened or challenged by the rest of the world in terms of their supremacy, the leading position in the global economy, I think the real question is what is more important for the United States, its own citizens’ wellbeing or really some kind of symbolic number one in the global system? Because you can see a lot of contradictions between the two. If you really want to have a

free society with prosperous economy, with equity, with justice, with high standards of living for the people, then you would have different sets of policies and programs that would allow you to do that. This will divert you away from military buildup, 877 billion dollars every year on military spending. It will pivot you away from the kind of tax cuts.

They’re expensive, quote unquote, in the sense that you would now lead to this argument about cutting entitlement spending. I literally hear a lot of economists will say, the debt ceiling is to constrain the US’ spending. We need to reduce the entitlement spending. We can’t afford it, which is wrong in so many aspect.

We cannot even start to challenge that by thinking, first of all, The US debt to GDP is 133%. It’s half of Japan’s level, and no one is worrying about Japan being bankrupt, given this is a monetary sovereign state. Not to mention, if you look at the US’ entitlement spending by the OECD ranking, the US spends about 18% of its GDP on entitlement spending, which puts it at 21st out of the OECD ranking.

It’s no way the top 10, it’s no way one of what people would call the welfare state. It’s the bare minimum that you need to take care of your citizens. But now you’re talking about we need to cut the entitlement spending because we wanted to reign in runaway debt and all these nonsensical statements. So again, I think when it comes to this context of global competition, really what can make the United States win, quote unquote, it’s how you build your strength from within.

And what kind of strengths you want. Is it that economic strength that help to provide a good living standard for your citizens? Especially those at the bottom that we used to believe. This is John Rawls’s principle. We wanted to measure a society’s wellbeing by looking at how they treat the bottom groups.

We’re really moving away from that. Or if you wanted to build that military strength, that would somehow empower you to be still the number one of the global economy. And I think the US is really losing a lot of the charm in terms of its diplomatic power. It’s all now about sanctions. It’s all about military buildup, the military muscle.

So I totally agree with you. I think we’re moving away from really what we want as society to what the corporate wants, what the political elites wants, what the financial interests wants, and that would, to my view, further undercut the US’ political, cultural, economic, diplomatic, and the social strength that very backbone, I think to support the US’ leadership in the global economy.

[00:58:21] Grumbine: Very well stated. Yan, I have hours of things I’d love to ask you, but I’d like to give you an opportunity to close us out with. What is the most important stuff you’d like people to take away from China’s ascendancy? The BRICS, and this concept of de- dollarization.

[00:58:39] Liang: So I think, again, what we need to emphasize here is this neoliberal economic system needs to be challenged. And I know that many people may question China’s intentions or its ability to challenge the neoliberal system, but I think it is a worthwhile undertaking. As we are now seeing that China is playing a leading role in uniting the global south and trying to provide some counterweight to the current neoliberal system, the whole de-dollarization debate sometimes could be more confusing than serving the real purpose. Which is we are seeing a process in the making that we wanted to provide a different alternative system to the current neoliberal where be from the trading system to the global financial system, or even just to the current US China tensions and also with the Russia Ukraine war.

I think all these events, all these trends are connected, which is we have lived in the world that does not serve the purpose of common good. Not only for the global south, but also for the great majority of the people in the global North. So we need to reform, we need to revamp the system. So one of the ways to do that is allow these global south countries to get together to establish their trading systems, to establish their financial systems, to allow them to put forth a different agenda than what Washington is trying to impose on these other countries.

And so I think whether China can do that, only time can tell, but I do think that at this point we should give China some, maybe confidence. We need to have some trust that it’s time for us to kind of revamp the system and it’s not going to be sustainable. It’s going to serve the common good of both the global south and the global north.

So we need to work on a new alternative system. And I think what all the people out there, including the academics and also community activists or anyone who is interested in how we can envision a new global order, is to understand this multipolar system is really the mega trend. There are many pieces that are moving.

We don’t wanna jump quite right in to say dollar is going to be defunct tomorrow. We can simply replace the dollar with the Chinese yuan. But we need to think more deeply and in a more complex way, what are the major flaws of the current system, and what are the ways that we can change the way that the global system can be reformed.

And so it’s gonna take time, it’s gonna take efforts, it’s gonna take cool head thinking instead of just jumping on the bandwagon to shout out those political slogan. I think there are real [inaudible], there are real actions need be taken, and so we need to keep exploring these really fascinating topics with real substance, with real implications in the world.

[01:02:11] Grumbine: I’m gonna ask you one follow up to that.

[01:02:14] Liang: Yeah,

[01:02:14] Grumbine: Within that space, there’s many voices talking and the noise is quite loud. How would you recommend people with a cool head evaluate and look at things? And more precisely, what would you say is the MMT perspective on the rise of China?

[01:02:33] Liang: I think that is a very challenging question. Even I think with the MMT communities or the largest of the post keynsian communities, there are definitely debates. Some of these debates are very constructive, but some of these debates are, to me, quite a distraction. So what I would say is, Be critical that you always wanted to go back to the basics of some of the common sense and also some of the basic principles of, for example, the MMTs teaching, which is how the money system works. How money is a public creature, and how we are able to harness money to wield the sort of power to construct a system that would serve the common good.

So I think there are a lot of the basics that we need to always remind ourselves of and also be critical, whatever the so-called experts say, we should take it with a grain of salt. And when people are trying to provide you a very clear cut black and white narrative, you need to think twice about it. If anyone says dollar is going to be dethroned tomorrow, you need to question that conclusion.

You need to challenge the basic assumptions and really think about. What are the alternatives? And also I would say people like you at Macro N Cheese and some other ones are doing this tremendous work because what you’re doing is to really translate some of the very complex theories into common sense to be able to make it really sensible to a lay person, or not so lay person, but translate it really in a way that means something to a general public.

So I think all this work are really important. I think what MMT has been so powerful is it’s not only a ivory tower debate full of academic jargon and equations and graphs and whatnot. I think the MMT communities is able to mobilize the community resources to translate whatever these academic debates are into common sense, into something that would affect us on a daily basis.

So I think that’s a tremendously valuable job that you are doing. So for your audience, definitely I think you have been bringing people who talk on different levels and different sides, and sometimes what they talk about seem to be conflicting with each other, which is great, which is what we need. We need a debate.

I think if we only have one unanimous voice, that’s the time we need to worry about the validity, about legitimacy, about our analysis. So I think this healthy debate is good, but we need to avoid that black and white conclusion and really be critical and think about what are the weakness and what are the strengths of the debate.

[01:05:29] Grumbine: Fantastic. Yan, this was amazing for me. I can’t wait to have you back on cuz there’s so much more I want to talk about. But for this episode, I think we’ve come to a nice closing. Let everybody know what are you working on? Where can we find more of your work?

[01:05:44] Liang: Right? So I am coming up for a sabbatical in the fall of 2023. Which means I am working on multiple projects that I hope can somehow be accelerated. So some of the short term projects, I am actually writing a paper on precisely this whole debates about the de-dollarization with wonderful MMT Scholar, also my UMKC fellow student, back then.

So we are working on this book chapter on challenging this de-dollarization debate. And, so that is going to be coming out as a book next year, which is basically focusing on China’s monetary system, monetary policy making, and China’s role in that global monetary system. So that’s a short term project.

And my longer term project, which means I’ve been working on since at least two years ago, was really on a MMT lens or perspective on China’s development. How I think many people have talked about the miracles of China’s development and what are the essential ingredients. And I think one of the things is really how China is able to harness public money, the development finance from within to finance its development.

So I think that it’s very important to talk about. And then another project that I’m working on right now is precisely on this view on the broader picture of China’s role in the global financial system. And so that includes not only the lending system, the AIIB or the new development bank, but also through Belt and Road initiatives and through debt restructuring process and in terms of its own financial reform, how China is shaping the global financial system.

So those are the two major projects that I’m working on right now. So the shorter ones will be out soon, but the longer ones, I’m really hoping to wrap out my MMT on development manuscript. So those are the things I’m working on. And I will be also in Poland for the summer school on MMT, and then hopefully also join the MMT conference in Germany in the fall as well.

[01:08:01] Grumbine: Excellent. Yan, thank you so much. This and all of our podcasts have transcripts. Please feel free to go to our website, realprogressives.org, and you can find the transcripts right there under the media under Macro N Cheese. Each episode not only has transcripts, but we also take the extra effort to build an extras page that all the references we hear from our guests.

We try to bring extra value. We provide you with links and further learning that you can do based on links. Each of these interviews, especially one like this one with you, Yan, it’s incredibly important and we don’t come close to touching all the important factors that people need to know. It’s just a good starting point, so I hope people take the time to check out the extras as well.

And with that, Yan, thank you once again. I appreciate you coming on.

[01:08:53] Liang: Thank you so much for having me again. I really appreciate the opportunity. I think all your questions are super relevant and challenging. And these are really hard questions, which always can help me to inspire me to explore all these new and really interesting questions. So thank you for that. And thank you for spreading the knowledge, the passion, and all these critical thinking to the broader community.

So thank you very much for what you do.

[01:09:22] Grumbine: Awesome. So with that, I’m Steve Grumbine, host of Macro N Cheese. My guest Yan Liang, we are outta here.

[01:09:35] End Credits: Macro N Cheese is produced by Andy Kennedy. Descriptive Writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.