Tao Xiang International Finance Lectures (No. 27), jointly organized by the School of Finance and Finance of Renmin University of China (RUC) and the International Monetary Institute (IMI) of RUC, was held online on the afternoon of November 5^th. Dr. Xia Le, IMI Senior Research Fellow and Chief Economist for Asia, BBVA, delivered a speech at the event on the theme of “Currency Swaps between Central Banks: A Comparison between China and the US and the Reform of the International Monetary System”. The lecture was presided by Qian Zongxin, IMI Senior Research Fellow and Associate Dean of the School of Finance, RUC. Zhao Xijun, IMI Academic Committee member and Co-Dean, Academy of China Capital Market, RUC and Wang Fang, Deputy Director of IMI and Associate Dean of the School of Finance, RUC, joined in the discussion. Students from the School of Finance, RUC, participated in the lecture.

Based on his own experience in the industry, Dr. Xia shared insights about international bank currency swaps from an academic perspective.

He first defined the currency swaps and, starting from the private sector, introduced the swaps between the central banks. Then he pointed out that the Federal Reserve’s currency swap is an ideal solution to “international dollar shortage.” The US dollar accounts for more than 60% of foreign exchange reserves and international debt, which shows that the currency is at the very center in the international monetary system. But if the whole world is too dependent on the dollar, there could be a “dollar shortage”. Historically, the Federal Reserve solved it through central bank currency swaps, which means using relatively low capital costs to inject liquidity into various systems around the world that required dollar settlement, and maintained the stability of the entire global financial system. This has been proven very successful.

Dr. Xia also believed that RMB’s involvement in currency swaps was an important lever for the internationalization of the currency. He cited three academic studies, pointing out that: 1. The People's Bank of China is different from the Federal Reserve when choosing a currency swap partner. Currency swaps between China and other countries are mainly based on economic exchanges between the two parties, not political factors. 2. The signing of currency swaps promotes other functions such as trade settlement, financial settlement, and investment in a country. 3. How currency swaps actually make differences.

Finally, looking into the future of currency swaps, He discussed whether the China-US currency swaps would end up on the same track. Now that the United States has established an international dollar-based clearing system through the Federal Reserve's currency swap network, in the decline of the dollar hegemony, the mechanism may prolong the waning dollar hegemony, or even in some cases, make it more important. As the renminbi is used more and more around the world, “renminbi shortage” is inevitable. China may ultimately have to establish a RMB-based international exchange network to construct a relatively more stable, inclusive, and open settlement system, or use currency swap arrangements to supplement foreign exchange reserves.