Read the interview here in Chinese, and see a clip: https://mp.weixin.qq.com/s/Z5pPHHBxU8Go-_GxSbm-rw

Translation:

Tan Zhu: In the last quarter of last year, the share of the US dollar as a global foreign exchange reserve fell below 59%, reaching the lowest level since 1995. How should we understand this number? How will this trend affect the world?

Jeffrey Sachs: Most directly, this figure means that the US dollar as a foreign exchange reserve and the US dollar as a clearing currency in international transactions have the same trend, both of which are decreasing. That is to say, countries will hold fewer dollar reserves, and international transactions denominated and settled in US dollars will also decrease.

Behind this development trend are both economic and political reasons. The economic reason is the decline in the share of the United States in the world economy. A similar situation happened in the pound in the first half of the 20th century. Today's dollar is yesterday's pound. The pound is also the world's key currency, but as Britain's share of the world economy declines, the role of the pound has also weakened.

From a political perspective, the global geopolitical weight of the United States is also shrinking, and the United States is trying to use the dominance of the US dollar to achieve its geopolitical goals, such as punishing and sanctioning countries that the United States does not like, such as Russia, Venezuela, Iran and North Korea.

However, other countries have a choice, and they can choose to give up holding US dollars, thus reducing the risk of freezing foreign exchange reserves. In fact, I do not support the freezing of the reserve assets of the Central Bank of Russia, because it is harmful in the long run. This will make many countries feel that it is not safe to hold the US dollar, because their geopolitical relationship with the United States is not good.

Tan Zhu: There is a view that the U.S. economy is experiencing a technological recession, and the "post-dollar" era is coming. What are the characteristics of this era? Do you agree with this view?

Jeffrey Sachs: The technological recession refers to the two consecutive quarters of decline in U.S. GDP. Now we do not define it as a recession, because it requires the U.S. Bureau of Economic Research to measure and determine whether it is really in recession through more indicators. In my opinion, if the Federal Reserve has to deal with stubborn inflation through vigorous austerity policies, the U.S. economy will enter the real recession announced by the National Bureau of Economic Research in the next few months. In fact, the U.S. economy has become weak.

The dominance of the US dollar is gradually weakening. With the shrinking of the share of the United States in the global economy and the weakening of geopolitical weight, the US dollar is weakening in all aspects, including as a means of settlement and a currency. We are also moving towards a multi-currency and multipolar world.

Lord Tan: There has always been a special relationship between the US dollar and the euro. We have observed that whenever the euro shows a benign momentum, the United States always seems to drag down the euro. Is this phenomenon real? How do you interpret this phenomenon?

Jeffrey Sachs: Generally speaking, the exchange rate of the US dollar against the euro is more affected by global economic events. At present, Europe is suffering from the serious impact of the Russian-Ukrainian conflict. The European Union imposed sanctions on Russia, and Russia also cut its natural gas exports to Europe. Therefore, Europe is now entering a period of a relatively serious economic contraction. This means that the euro is quite weak and interest rates remain low. The United States is not affected by the conflict. The United States does not rely on Russian natural gas, and the United States is basically self-sufficient in fossil fuels. Therefore, the result is that the euro is depreciating against the US dollar, because the economic situation in Europe is much worse than that of the United States.

Lord Tan: Do you think the exchange rate of the euro against the US dollar will continue to decline?

Jeffrey Sachs: I've never been a good currency forecaster. However, we can understand why the euro is so weak now, because the eurozone economy is shrinking. This is quite noteworthy. If the crisis in Ukraine ends soon, the European economy will recover. However, if the crisis continues, the European economy will be weaker and the euro will continue to be weak.

Tan Zhu: The United States and NATO are one of the main factors triggering the Russian-Uzbek conflict. Do you think the United States is also going to attack the euro?

Jeffrey Sachs: The purpose of the United States is to create and deepen the crisis in Russia as much as possible. However, the U.S. measures, including freezing Russia's central bank reserves and imposing sanctions on Russia, have not worked.

One reason is that Russia has the ability and tools to counteract - to reduce or stop selling natural gas to Europe, and Russia is indeed doing the same. Then, European leaders accused Russia of "politicizing" natural gas exports. But the fact is that "politicization" has begun long ago. This is an open conflict and a proxy friction between NATO and Russia. The United States and Europe hope to weaken Russia through sanctions, but instead of not working, they have caused great harm to Europe, which the United States regards as a geopolitical and strategic partner.

Tan Zhu: This year, the inflation level in the United States has repeatedly hit new highs. In response to inflation, the Federal Reserve raised interest rates on a large scale. What are the spillover effects of the Federal Reserve's large-scale interest rate hike in this year's global environment? What should we prepare for?

Jeffrey Sachs: Whenever the Federal Reserve implements a tight monetary policy, it will cause difficulties for many countries and companies. Specifically, there will be two effects: First, the cost of borrowing will rise. This is obvious because interest rates have risen. Second, the ability of these countries to obtain loans is also declining.

In other words, for these countries and companies, the Federal Reserve's tightening monetary policy not only pushes up borrowing costs, but also reduces liquidity. Therefore, many low- and middle-income countries will face a serious debt crisis because they cannot borrow new debt to pay off existing debt that is about to mature. Therefore, we have seen some violations, such as Sri Lanka, and there will be more violations in the future.

Of course, this also largely depends on the global crisis and the development of inflation in the United States, because the more inflation is, the more interest rates raised by the Federal Reserve, and the greater the crisis facing emerging market countries and developing countries will face.

Lord Tan: Do you think the United States is consciously using the dominance of the US dollar to absorb the global currency when the crisis occurs, especially when the United States is facing some difficulties?

Jeffrey Sachs: Indeed, the United States is concerned about its own economic development and geopolitical goals. After the beginning of the Russian-Ukrainian conflict, the United States confiscated Russia's foreign exchange reserves, which the United States deliberately did. But the Federal Reserve raised interest rates almost exclusively to deal with severe inflation in the United States. U.S. monetary policy was introduced based on the needs of its own political economy and economic development, and other countries were not taken into account. The U.S. government and the Federal Reserve paid little attention to the spillover effects of U.S. monetary policy.

Exactly, the United States does often trigger crises in other parts of the world. For example, the Wall Street financial crisis caused by the bankruptcy of Lehman Brothers in 2008 and the global debt crisis caused by the monetary tightening policy adopted by the United States in the early 1980s. Today, we are in a very critical and sensitive period, with rising interest rates and declining currency liquidity. Due to the Russian-Ukrainian conflict and Western sanctions, many countries are facing a serious energy crisis or a sharp rise in food prices. All of this is the condition for a global crisis. More importantly, the current cooperation between China and the United States is not smooth, so we are more worried about the future.

Although this does not mean that a crisis will happen, it may actually occur. In this case, global leaders should cooperate to avoid a wider crisis.

Tan Zhu: At present, the global exchange rate fluctuates heavily, but the RMB is relatively stable against the US dollar. Is the RMB significantly stable compared with other major global currencies? What do you think will the stability of the RMB be useful for other countries?

Jeffrey Sachs: Overall, the RMB has remained stable, with a slight depreciation against the US dollar and a slight appreciation against the euro, which is a reflection of the overall situation of China's economy. However, the COVID-19 pandemic and geopolitical conflicts and tensions have disrupted the world economic order. In this case, no country can stand alone, so we need more cooperation in this regard.

Specifically, China, the United States and the European Union should work together, especially in the context of the G20, to promote negotiations to resolve the Ukrainian crisis and control the global spread of COVID-19, ensure an environmentally sustainable development transformation through investment, and promote the development of developing countries and bypass the trap of the financial crisis.

Tan Zhu: Three years ago (2019), you predicted that in the next decade, there would be three major currencies in the global monetary system - the renminbi, the euro and the US dollar. However, in the past three years, the whole world has changed dramatically. Have you changed your original opinion now? What kind of tripodity do you expect?

Jeffrey Sachs: There is no doubt that we are moving towards a diversified monetary system. Of course, this is caused by many factors.

One factor is that the US dollar is becoming a "political tool" and is no longer just a means of payment. We can see that the US dollar has been politicized in the Ukrainian crisis, such as the United States freezing the reserves of the Central Bank of Russia and preventing it from using the banking system. Under such circumstances, Russia naturally shifts from dollar settlement to settlement in rubles or rupees or RMB. At the same time, I also believe that more and more countries in the world, especially those who feel the threat of U.S. sanctions, will no longer use US dollars to settle, and their choices will also change the characteristics of the global settlement system or monetary system.

In addition, there are other factors contributing to this trend. At present, we are moving from the bank settlement system to the digital settlement system, and the introduction and popularity of digital currencies (such as digital RMB) will continue to change the payment method and take away the core position of the US dollar.

Tan Zhu: You mentioned at that time that this tripartite situation of the RMB, the euro and the US dollar may take shape in 2029. Do you think the Russian-Ukrainian conflict will advance this time?

Jeffrey Sachs: In the international market, trillions of dollars of transactions are made every day, and the way these transactions cannot be completely changed overnight. Therefore, the transition to digital settlement, non-bank settlement and non-dollar settlement is a gradual process, which cannot be completed within a day. However, the Russian-Ukrainian conflict has indeed accelerated the changes in some trading methods. More and more oil trade, not only with Russia, but also with the Middle East, will use more non-dollar settlement. These reductions will not happen in a day, but the geopolitical crisis has worsened faster than we expected.

The same is true for the internationalization of the RMB. Although this process will not be completed in a day, it is actually happening. At present, China's financial sector is opening up financially in various ways, such as issuing more bonds with the RMB as a settlement unit, thus increasing the possibility of the RMB as an international settlement.

However, at present, the world economy is unstable, cooperation is not effective enough, and many things are unpredictable. Therefore, I think the changes in the direction I predicted before, that is, the decline of the status of the US dollar and the improvement of the status of the RMB, are gradual, but in such a complex situation, it is very reckless to predict a specific date of achievement.