Home Banking Quarterly review: Don’t overplay the dollar’s decline in 2021, SDR proposals could help reset international monetary system, and more

Quarterly review: Don’t overplay the dollar’s decline in 2021, SDR proposals could help reset international monetary system, and more

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Quarterly review: Don’t overplay the dollar’s decline in 2021, SDR proposals could help reset international monetary system, and more

THE QUARTERLY REVIEW – OMFIF 

OMFIF’s most read opinion and analysis from the start of the year

1 January-31 March 2021, Vol.12 Ed.2

Expect some weakness, but no crash

Don’t overplay the dollar’s decline in 2021: Many observers are converging towards a highly downbeat 2021 outlook for the dollar. This view is at times associated with a surging risk appetite, the end of a strong dollar cycle or a twin deficit crash. Given the seeming random walk nature of exchange rates, forecasting the dollar’s 2021 outlook could be an act of hubris. That said, the dollar may indeed fall this year, but an overly negative narrative is unwarranted. Many arguments for a future slump don’t hold up, writes Mark Sobel. 

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Help for emerging nations
SDR proposals could help reset international monetary system: The IMF’s special drawing right is undergoing a renaissance, with worldwide repercussions. The announcement of the largest-ever increase in SDR allocations, which will improve the liquidity of many developing nations, signals alignment between the US and China. The world’s monetary system may be approaching a turning point, write Willem Middelkoop and David Marsh. 
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Hybrid approach
Diem bridges banking and crypto worlds: Diem has been through several iterations since it was first announced in June 2019. Now those behind the project are beginning to reveal where they expect Diem to sit within financial markets. They are outlining how it will overcome regulatory and structural hurdles as it enters use. The plan is for it to act as a bridge between traditional banking and new, digital assets, writes Katie-Ann Wilson. 
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Digital currency project winners
The front runners: Several advanced and prominent central bank digital currency initiatives are setting the standard in research, identification of credible policy objectives, use cases and technological design. China, Cambodia, Singapore, Sweden and the Bahamas are leading the world when it comes to CBDC, providing a guide for others, write Chris Papadopoullos, Pierre Ortlieb and Levine Thio. 
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New debates over imbalances
Currency disputes may soon resurface: The pandemic profoundly changed external sector and currency market dynamics in 2020 and may do so further in 2021. US expansion may herald a return to debates about global imbalances and currency wars. Differences in crisis policy stances around the world may have major ramifications for global current account positions, writes Mark Sobel. 
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