Daniel McDowell
@daniel_mcdowell
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Family man | Professor @MaxwellSU | Sr. Fellow @AtlanticCouncil | Fmr. China Fellow @TheWilsonCenter | Tweets: Geoeconomics, Finance, & Cleveland sports
Syracuse, NY
Joined September 2011
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"Bucking the Buck" is officially out. Here is a 🧵describing what you'll find in the book. 1/18
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If you are struggling to understand the difference between proposed SWIFT sanctions and the targeted sanctions on specific Russian banks unveiled today, here's a quick tutorial, using a forced air home heating system as an analogy for the cross-border payment system. 1/
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Impressive job by this young man on
@BloombergTV
this morning. Proves what I've always said: Every report about the Bundesbank should include goofy dancing kids in the background!
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So, the targeted sanctions announced today are more severe for individual banks, but they are much narrower in scope.
Fin.
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Banks (like VTB) targeted directly by Treasury won't be able to move $$$ through the financial ducts. To use the analogy, it is as if you were to disconnect a room from the heating ducts. Even if it had a thermostat, it wouldn't matter--heat would no longer reach the room. 9/
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OTOH, SWIFT sanctions would apply at the country level and cut off all Russian financial institutions from the thermostat (messaging system). But SWIFT sanctions would *not* cut all Russian banks off from the duct work. 7/
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The US banking sanctions unveiled today prohibit specific targeted banks from accessing the duct work that moves $$$ around the world. 6/
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Technically, Russian banks not targeted directly by Treasury could attempt to find messaging workarounds, even if they were cut off from SWIFT. But this would take time and have substantial transaction costs. 8/
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This book epitomizes the (literal meaning of the) saying "don't judge a book by its cover."
A masterful, comprehensive account of US "economic defense policy" during the Cold War. Published in 2002, this book has probably never been more relevant than today.
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SWIFT is how banks communicate with each other, requesting that $$$ be moved from one account to the next. But, just like the thermostat doesn't move warm air around your house, SWIFT doesn't move $$$ around the world. 4/
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In your home you have a thermostat. When the thermostat recognizes that the temperature is too low, it sends an electrical signal to your furnace to heat up some air and blow it into each room via heat ducts. 2/
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$$$ flows from one account to the next via correspondent banking accounts. This is the "duct work" of global finance. 5/
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In this analogy, SWIFT is the thermostat system, the the warm air is the $$$, and the ducts are correspondent bank accounts. 3/
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The next time someone says "China owns the US" show them this chart.
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Post-Afghanistan, DIA was surprised by Ukraine's will to fight. A fascinating admission. One wonders how much this impacted US willingness to provide heavy weapons early in the conflict. Also, a healthy reminder that FP decisions are not independent of past FP outcomes.
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When we talk about RMB internationalization, we're mostly talking about the growing role of RMB in China's own int'l transactions, not its use in trade b/w third countries. This story is a (still rare) example of RMB use in a deal not involving China 1/
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Xi's political strength is China's financial weakness, a 🧵
With his 3rd term now official, foreign investors sold a record amount of Chinese equities Monday, causing markets & the RMB to tumble.
As China becomes more authoritarian, foreign capital is voting with its feet.
1/
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One common ? RE: Western sanctions is: How will the Russian public react? If sanctions are costly, won’t this turn Russian public opinion against Putin? Political scientists studying economic coercion have long debated this. The most recent work isn’t encouraging on this point🧵
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In 2017, I began brainstorming a book project. In 2018, work began. In 2020, a pandemic derailed progress. As recently as 1 year ago, I doubted I would finish the job. Today I can say the book is forthcoming with Oxford UP. Some work remains, but I'm so grateful to at this point.
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Argentine Peso is in trouble. Russian Ruble continues to tank. Rumors of capital flight from China amid a falling yuan.
Dollar is definitely doomed.
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Full cover is done. Thanks to
@B_Eichengreen
,
@LaynaMosley
, and
@Brad_Setser
for the terrific blurbs. I couldn't imagine a better trio to endorse the book.
March 10 release date:
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You don't see a 3-2-3 double play every day.
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Helleiner's magnum opus is a foundational text for understanding how today's int'l financial system came to be. This section on Reagan-era reforms always amazes me, because it shows that the dollar's true global potential was essentially unrealized for 35 yrs after WW2.
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Covid hits higher ed.
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To anyone facing PhD program rejections while others (rightly) celebrate acceptance: hang in there. 16 yrs ago, I applied to eleven programs. I received ten rejections before getting good news (which came without any guaranteed funding). It doesn't always come easy & that's OK.
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@mtnance
Ha, I like it. Yah, slower, or maybe less efficient is a better way to say it. There are limits to my analogy (as with all analogies). A bank cut off from Swift, but not directly sanctioned, would have to use other means to communicate with correspondent banks.
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A Memorial Day weekend🧵about an obscure battle over a Medieval fortress on a hill, Nazi flamethrowers versus GIs throwing rocks, seven days of hell on the "forgotten front" of WWII, and my grandpa, Bill Keen. 1/
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There are so many incredible mentors and friends, at my home institution and beyond, to whom I feel indebted on this day. I will not attempt to list you all, but if you see this, and you are one of them, thank you.
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Pretty crazy turn of events that Soviet fears about a USD asset freeze ended up jumpstarting the Euromarket which just further entrenched the dollar's global dominance.
Dollar haters can't win for losing.
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The longstanding, misplaced fear that China could one day sell off its vast Treasury holdings to trigger a dollar crisis is silly, not only because such a move would harm China's interests, but also because a 1977 law gives the US president the power to stop this exact thing.
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For decades, experts have been calling attn to risks to globalization. Econ integration is fragile, they argued, b/c politics could undo the transnat'l effort to make markets ever more efficient. They were right to focus on politics but largely missed the security angle. Why? A🧵
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In light of the Stephen Jen analysis drawing attention to (and I think overstating) the USD's long-term slide in global reserves since ~2000, I suggest one potential factor behind reserve diversification: improvements in reserve adequacy.
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1. Left axis starts at 45
2. Right axis starts at 1 (wtf)
3. Dual axes (almost always bad, tho occasionally defensible)
4. Dual axes plotting values that share a single scale?? No no no.
This isn't just a Chart Crime. It's a
#PolyChartCrime
.
Probably more than one chart crime here (from an unusual source -- the FT)
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TIL that I talk with my hands more than I knew.
Also: It was an honor to speak with
@FinancialCmte
@FSCDems
today about preserving dollar dominance.
Full hearing link:
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Today I received a letter confirming I paid off my final undergraduate student loan, dating back to 2001. It took many years, many jobs to get here. In homage to a 20-yr odyssey of paying for my own education with my own labor, I list those jobs in chronological order here:
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The Bucha Massacre has some calling for even tougher sanctions on Russia. Contrary to how sanctions have been portrayed, the Russian financial system is not completely isolated. Sanctions could be intensified. Here’s how, using air travel to illustrate. 🧵
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There's been a flurry of big-name commentary on sanctions & de-dollarization over the past few days. Just a few examples:
Tooze:
Gopinath:
Wolf:
A short 🧵 with a few of my thoughts.
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TIL one of the worst days in American history may have been averted had a man just taken a woman seriously.
(Events from December 6, 1941)
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What will end first?
A. My APSA panel
B. The movie my three unattended children are watching?
A lot hinges on this outcome.
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The idea that fears about Western sanctions will propel China to devise a plan to topple USD's reserve currency dominance by promoting the RMB as an alternative is nonsensical because it would do nothing to help China diversify its own FX assets to minimize sanctions risk. 1/
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Short 🧵on negative security externalities of sanctions targeting Russia.
@nytimes
& others have been doing some great reporting on Russian-backed violence in Africa. One key motive: Russia's thirst for gold--an asset that's quite difficult for the West to sanction. 1/
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This report from last week insinuates that the RMB has become the top currency in China's cross-border transactions, surpassing the dollar for the first time ever. Here's a short 🧵on why that is misleading. 1/
Link:
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I just aced a parallel park job in a very tight spot (in front of a F-150 and behind a Maserati) w/ multiple cars waiting behind me & with three pedestrian onlookers. Once parked, one of the onlookers told me he was very impressed. This is one of the great moments of my life.
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Shortlisting this Milner and
@ErikVoeten
paper.
More generally: More of this type of writing, thinking, debating, please.
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So, I'll just leave it here, & say thanks to all those soldiers in his unit who didn't make it back from Battle Mountain--a forgotten fight that deserves to be remembered.
FIN.
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China's holdings of US Treasuries fell below $1 trillion in 2022 for the first time in years. Does this mean China is de-dollarizing its reserves? A short 🧵(w/ special thanks to
@dismaleconomist
for a helpful consult!)
1/
China cuts US Treasury holdings to lowest level since global financial crisis. And the sales are accelerating.
At the same time China is increasing its gold reserves.
#gold
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The Saudi's have a shiny new PBOC swap line. What does this mean for the petrodollar? The yuan?
A few thoughts:
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@hern_erin
@BloombergTV
Amazing, right? What's funny is I saw this coming before the kid made his appearance. Moments before, you could tell by shoulder movement that dad was waving his hand in a "get out" motion and I thought, "I know exactly what's going to happen here" and it did 😂
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A 🧵 on
- Renminbi internationalization (RMBI)
- Russia sanctions
- Chinese data
1/
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MS Outlook needs to add a feature where every time a user clicks "Reply All" a window pops up asking: "Are you sure everyone needs to see your response? Why not try 'Reply' instead?"
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How it started, 2017.
How it's going, 2023.
Purchase w/ promo code ASFLYQ6:
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I've read a lot of books about the dollar (I even wrote one) b/c I think that's the best way to understand the modern world economy & America's place in it.
If you want to understand those things,
@SalehaMohsin
's Paper Soldiers is what you should be reading right now.
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The folks at the
@AtlanticCouncil
's GeoEconomic Center (
@ACGeoEcon
) are doing compelling and timely work. I'm happy to be joining the team.
We are thrilled to welcome our new nonresident senior fellow
@daniel_mcdowell
! 🎉
Daniel is Associate Professor
@SyracuseU
and recent author of "Bucking the Buck: US Financial Sanctions & the International Backlash against the Dollar"
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There's a lot to love about academic Twitter. But I worry about the effect it has on PhD student mental health. I struggled with confidence off & on during grad school & I was only comparing myself against peers at my institution, not all of PhD Twitter.
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Short 🧵on this great
@Reuters
reporting:
Russia is asking India to settle oil payments in UAE dirhams to avoid sanctions. At least two Indian refiners have already done so with the help of a Dubai correspondent bank.
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@UniWatch
Meijer sign at
@CleGuardians
Progressive Field gave
@Rangers
pitcher Garrett Richards Mickey Mouse ears.
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On my lunch break, my 5yo asked me: "Dad, what do you want to be when you grow up?"
I said: "I'm already grown up and I'm a professor."
He replied: "That's not a real job. A real job is a firefighter or a builder."
😁
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Let's be clear about something:
-Western military aid is being used by Ukraine against Russian military targets/personnel who have illegally invaded a sovereign state
-Chinese military aid will be used by Russia to kill civilians and commit war crimes
There is no comparison.
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12 years ago (!) today this kid became a "doctor." One month later, he became a dad. Three months later, a professor. Jeez, I feel old today!
Time and tide wait for no man.
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Turns out he was a fashion criminal before he was a war criminal.
incredible photo of putin wearing a red 6x1 double-breasted blazer with Adidas track pants
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Cover art is still TBD but my 6-year-old apparently has some thoughts.
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I'm counting this email as a "win" in a week where they've otherwise been hard to come by.
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Steven Liao (
@stevenliaotw
) and I have a new paper out at The Review of International Organizations (
@The_PEIO
) exploring how reputational concerns affect emerging market decisions to use (or not use) capital outflow controls. Abstract below.
Link:
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The Biden administration is sending Vladimir Putin his Christmas present a little early this holiday, and this year it's something extra special: secondary sanctions!
A Yuletide 🧵about this escalation in the US economic war against Russia's war machine and how it will work.
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Recent experimental evidence largely rejects the deprivation hypotheses and supports the backlash view. For example, work by
@timothymfrye
on Russian public opinion finds that sanctions do not reduce public support for the government. 4/
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China doubles down on being Russia's economic lifeline: Chinese imports from Russia surged to an all-time record in August.
Notably, an increasing share of that trade is being settled in renmibi.
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This is a well balanced piece in FT on the recent uptick in RMB trade settlement. 🇨🇳 trade with 🇷🇺 almost certainly accounts for most (if not all) of the increase.
Still, remember that the 💵(and 💶💴) quit Russia rather than the other way around.
Link:
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Incredible Bloomberg report documents how Russia and Iran are investing billions in physical infrastructure (rail, canals, etc.) behind a new bilateral, sanctions busting trade route.
Link:
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Decree: The day after Thanksgiving will henceforth be known as "Co-authored Paper Acceptance Day"
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100%, this has always been one motive for countries, like Argentina, with PBOC swap lines to pay for Chinese goods in RMB. Using RMB to save USD says more about the value of USD than it does about the appeal of the RMB.
Paper:
As in Russia, another move forced by expedience, in this case not running down its dollar reserves. The RMB is the currency of choice for countries that have no good alternative.
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Imperial Japan would like to quibble w/ those who think Russia was the first country to have $ assets blocked by the US.
In July 1941, FDR ordered a freeze of Japan's $ assets amounting to $61 mn ($1.3 bn today)...only after (paper!) US T-bills were smuggled out via boat.
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If the sanctions weren't biting, Putin wouldn't be trying to negotiate sanctions relief.
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It's possible I should have given the title a little bit more thought 🤔
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Fascinating thread arguing Russian gold reserves are of little use given peculiarities of the gold market. While I agree that gold's value is largely limited for the reasons Florian describes, I think there is more value in gold than is acknowledged here. Some quick thoughts. 1/
Zoltan Pozsar is one of the world’s most respected money market specialists and predicted the repo crisis in September 2019. Here he is getting it wrong, as he misses key aspects about the gold market and MoPo implementation in his analysis (1/18)🧵
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Richard Cooper's "The Economics of Interdependence" (1968)--a book I pored over as a graduate student--is so underappreciated. Cooper was ahead of his time as an economist who recognized that BOP adjustment was, at its core, "a political choice, not an economic one". Proto-IPE.
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Putin bought gold for 8 years, anticipating Western sanctions. How useful could bullion be to an isolated Russia? I share with
@WarOnTheRocks
why the very thing that makes gold an antiquated asset (it is physical) is what makes it useful as a last resort.
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The secondary sanctions that apply are quite narrowly focused on industries also targeted under the export control regime. My guess is that the Biden admin learned export controls alone weren't preventing Russia from acquiring critical military components, in part, because...
1/
Interesting post on the U.S. applying secondary sanctions with strict liability on Russia. My question is why did it take so long to impose them?
@daniel_mcdowell
@M_C_Klein
@gdp1985
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If you hear the line that "Russia is developing its own payment messaging system" used to imply that SWIFT sanctions wouldn't matter, here's a quick comparison:
SPFS (Russia's system): ~400 member banks in 6 countries
SWIFT: 11,000+ member banks in every country.
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Today, May 12, 2020--a date which will live in infamy--Central New York was suddenly and deliberately attacked by the Empire of Winter.
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What financial isolation looks like: After being sanctioned in 2019, Banco Central de Venezuela was reduced to flying gold bars (via Russian aircraft, no less) to Turkey, Uganda, & the UAE, where Maduro's lackeys accepted cash euros in exchange for bullion.
Already, ~27% of 🇷🇺’s reserves were not liquid/readily usable (gold, IFIs): . The new coordinated sanctions are now targeting most of the rest.
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A poster at a restaurant in Guangzhou, China, declares that all American customers will pay 25% more than other customers starting the day President Trump initiated a trade war with China.
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Now up online, my forthcoming
@RIPEJournal
article, "Financial Sanctions and Political Risk in the International Currency System"
Financial sanctions and political risk in the international currency system, by
@daniel_mcdowell
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It was a delight to speak at the fifth Jefferies Asia Forum in Hong Kong on "De-dollarization: What is real, what is imagined?" Thanks to all those at
@Jefferies
who organized this fantastic international event.
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I sent back page proof edits for the book, which means my work on it is now finished. Strange feeling when you come to the end of a long road. I guess I'll go reply to some emails.
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I don't want to say sovereign credit ratings of the United States are irrelevant, but sovereign credit ratings of the United States are irrelevant.
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President Biden could, with the stroke of a pen, nearly completely isolate Russia's oil and gas industry. He could do it *today* if he wanted to. This would inflict heavy costs on Russia. But it would also cost the US and the West.
Some thoughts.
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Back from vacation with a new member of the family. Miss Charlotte says "hi" 👋💗
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In a separate study on Israeli public opinion, Guy Grossman, Devorah Manekin, and Yotam Margalit find that economic sanctions increase support for hardline policies rather than increasing support for capitulation. 5/
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BRICS WILL MOVE FORWARD ON TRADE CURRENCY WITHOUT DOLLAR: LULA
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In light of the new, incoming sanctions targeting Russia, here's a quick thread (of mostly figures) showing how Russia reacted to past US sanctions by implementing anti-dollar policies. 1/n
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One of the highlights of the academic year is
@MaxwellSU
's Celebration of Undergraduate Scholarship. It was a joy to mark the moment with our awesome political science distinction students yesterday. So proud of them!
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