Does Yuan Pose a Threat to US DOLLAR?

 

When we talk about the number 1 global currency, the American dollar comes to mind because it makes up almost 90% of foreign exchange and 62% of foreign reserves. As most of the crude oil export revenues are dominated in the US dollar so that’s why it is also known as the petrodollar. Almost all of the oil trade worldwide is done in US dollars. The American dollar accounts for 2/3 of international debt. Since 1944 the US dollar has been a global currency and that’s how it has been ever since.

Has any other currency ever challenged the dominance of the dollar? The euro tried to tear down the dollar as it was launched with a target to become a global currency, but due to the euro market crash between the years 2010-2012 the currency lost its chances and the US dollar continued to dominate the global financial markets, but now a new competitor is popping up and that is the Yuan or the Renminbi.

Yuan’s growth has been an integral part of the Xi Jinping Agenda. The Chinese president is trying to feed two birds with one seed. If the Yuan becomes successful in superseding the American dollar, Xi Jinping will become a hero at home and outside. The Yuan is being prepared to bring down the US dollar’s status as the world’s currency.

In the year 2015, the International Monetary Fund recognized the Yuan as a foreign reserve so this makes the Yuan or you may say the red note, is a newbie when it comes to foreign reserves. During the past 7 years, the Yuan has managed to account for only 2.02% of global payments but by the end of the year 2030 this number can climb up to 10%.

On the other hand, the US dollar accounts for 61.99%. This is according to the IMF data, and the gap is still very wide but China has planned to bridge this gap through China’s Belt and Road Initiative.

China’s huge infrastructure investment ushers in a new era of trade and development for economies in Asia and abroad but many skeptics say that Chinese governments are laying a debt trap for the countries that are involved in the project.

An example can be witnessed in Africa. At least 14 countries were forced to use the Renminbi as their reserve currency. This includes Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Eswatini, Tanzania, Uganda, Zambia, and Zimbabwe. Chinese News Agency Xinhua was excited to share this news in the year 2019.

China is imposing its currency on Africa, Utilizing capital to shell the pockets of poor countries. The idea is to counter the US dollar’s dominance in the region where you see countries like Zimbabwe used to use the dollar as their official currency, but now the Yuan is being used as well.

The Chinese Yuan is just one of many challenges that the US dollar is currently facing. China’s largest weapon is the digital Yuan. Mark Carney an economist and a former Governor of the Bank of Canada & Bank of England once said that the dollar can only be replaced or superseded by a global digital currency and that is what China is trying to develop.

China’s 2016 National Economic Plan was to move the blockchain forward by the year 2016. XhiJinping said in October 2019 that China should accelerate blockchain development.

Fan-Yifei the Deputy Governor of PBOC People’s Bank of China said: “It is unclear whether Chinese businesses and consumers will welcome the digital Yuan but its acceptance will be mandatory.” As China is forcing the Yuan on Africa, it will also be forcing the digital Yuan on its people.

At the moment it is unclear when this digital currency will launch but what’s known is that all the multinational companies whether Starbucks or MacDonald’s that are doing business in China will have to accept the digital Yuan.

An article in the China Daily argues that “the sovereign digital currency provides a functional alternative to the dollar settlement system.

China is planning how to systematically devalue the US dollar and Beijing has been chalking this out for a while.

In 2009, China, Russia, Brazil, and India established a partnership, and South Africa joined a year later. The idea came to establish a new world order. China’s agenda was to increase the holding of the Yuan bonds in these emerging markets. However due to the Ladakh standoff and all the espionage, India lost the confidence of China, But Russia, China’s new old friend is playing its role to depreciate the dollar. Russian President Putin said in 2018 that “We are not giving up the dollar, the dollar is giving upon us.”

In 2018, Russia’s central bank sold $ 100 billion from its reserves. Russia converted that money into the Euro and the Yuan. Putin is actively De-Dollarizing Russia and yes that is the term.

In the S400 deal with India, Russia accepted payments in Indian Rupees. In the first quarter of 2020 the share of the dollar in trade between Russia and China fell less than 50%, the US dollar was used only 46% for settlements, the euro 30%, and the rest of the trade was in the Yuan and the ruble. Russia is helping to depreciate the dollar and raise the Yuan.

After the current Ukraine Russia crisis and sanctions, Russia made an open offer that they will accept the oil payments in Ruble.

Russia holds one-fourth of the world’s Renminbi reserves. So the question here is, what does China want from this, and why is it so desperate to give up the dollar?

The answer can be explained in 3 parts:

• China will be Obtaining the World Economic Cloud,
• China becomes a financial superpower if the financial reserves are transformed into the Yuan.
• China will end the era of its main enemy United States.

At the moment, the Yuan accounts for only 1.85% of global transactions. It accounted for 1.6% of all transactions in March 2018. Between March 2018 and March 2020, the dollar rose from 39.4% to 44% of total global transactions, compared to the US dollar. Comparing the numbers the dollar still has a lead and the Yuan still lacks confidence.

Britain ranks second on the list of offshore economies, with London accounting for 6.7% of the Yuan’s inbound and outbound transactions.

With these figures in mind China can only dream of toppling the dollar all at once and that is not happening soon, Yuan is not even the closest competitor to the dollar, but the euro is.