Jeffrey Sachs on Countering US Dollar Dominance in China

Economist Jeffrey Sachs likens U.S. actions against China to its 1980’s policies targeting Japan, such as the Plaza Accord and export restraints, which curbed Japanese growth but led to economic stagnation and political challenges in both nations.

Sachs recommends that China diversify its exports beyond the United States, expand the Belt and Road Initiative through long-term financing, allow the yuan to depreciate, and invest in domestic energy and digital transformation as strategies to combat US protectionism and dollar hegemony.
Key Strategies:

Export Diversification:
Sachs encourages China to reduce reliance on the U.S. and focus on expanding export markets in developing countries, leveraging its strengths in infrastructure and technology.
Belt and Road Initiative (BRI):
He advocates for enhancing the BRI with long-term financing to support borrowing nations, strengthening trade partnerships and global economic integration.
Currency Strategy:
Allowing the yuan to depreciate against the dollar is proposed as a natural market response to U.S. protectionism, avoiding accusations of currency manipulation.
Energy and Digital Investment:
Sachs recommends significant investments in domestic energy and digital transformation, possibly through deficit financing, to bolster China’s economic resilience and infrastructure.
Non-Dollar Payment Systems:
Developing a payment system independent of the U.S. dollar, potentially through a digital central bank currency, is highlighted as crucial to counter the geopolitical leverage of dollar hegemony.

Summary:

Sachs emphasizes that a proactive and diversified strategy can help China mitigate risks from U.S. protectionism while fostering sustainable growth and reducing dependency on dollar-based systems. These measures aim to ensure economic stability in an increasingly multi-polar world.