China et al Ditching Dollar

A growing number of countries are opting to diversify settlement currencies, stepping away from only using the "US-weaponized" dollar, or ditching it altogether in favor of the yuan, the increasingly internationalized currency of China – a top trading partner of more than 140 countries.

If Beijing abandons the US dollar in trade settlements, the United States will be faced with "stark" consequences, a Chinese news outlet has warned.

Underscoring that a "new trade order is emerging," the report highlighted the global trend of de-dollarization as paving the way for China's currency - the yuan. 

As the People’s Republic of China boasts the status of one of the world's largest trading countries, if Washington opts to "decouple" from China, this might set off a domino effect, with increasingly more countries preferring to trade with China using the yuan as an exchange currency, it was noted.

“We are for de-risking and diversifying, not looking to decouple,” US National Security Advisor Jake Sullivan said at the Brookings Institution in late April, in reference to China’s economy. 

However, the report underlined that imports of consumer goods by the US plunged 20.6 percent year-on-year in the first three months of this year. If the decline trend continues, it will, in turn, "accelerate the global de-dollarization trend," warned the publication. Meanwhile, the share of the yuan - also referred to as the renminbi - in the Republic of China's cross-border payments shot up to 48 percent in March, data cited by the report showed.  READ MORE...

China Trying to Replace Dollar with Yuan

At their recent summit in Uzbekistan, members of the Shanghai Cooperation Organisation (SCO)—a prominent regional organization led by China and Russia—agreed on a road map to expanding trade in local currencies. A road map for using local currencies in trade and developing alternative payment and settlement systems has been part of the SCO’s economic plan for years.

This agenda is in line with individual policies on the part of the group’s most prominent members, including Russia’s attempt to cushion the blow of Western sanctions, China’s deteriorating relations with the United States, India’s use of nondollar currencies in its trade with Russia, and Iran’s recent proposal for a single SCO currency.

Chinese President Xi Jinping proposed to address development deficits through regional integration, especially by expanding the shares of local currency settlements, strengthening the development of local-currency cross-border payment and settlement systems, and promoting the establishment of an SCO Development Bank.

Xi did not openly discuss the geopolitical risk of U.S. dollar dependence when addressing the recent SCO summit. However, his proposal reflected Chinese leaders’ deep concerns about the vulnerability of the Chinese economy to U.S. dollar hegemony and their desire to develop alternative systems to hedge against the risk of the dollar’s dominance.

Beijing is not, for now, attempting to make the yuan an internationalized currency. It does not seek to dethrone the U.S. dollar and replace the dollar’s dominance in the global system with the yuan. Instead, it is taking steps to make the yuan a regionally powerful currency through local institutions in China and regional intergovernmental organizations such as the SCO. 

Beijing wants to increase the use of the yuan in China’s cross-border trade settlements and investment, reduce its dependence on the dollar, minimize exchange risk and dollar liquidity shortage, and maintain access to global markets during geopolitical crises.

China’s de-dollarization initiatives are not only implemented by the central government in Beijing. Some of the initiatives have also been carried out by local governments and local financial institutions. One example is the Sino-Russian Financial Alliance. In October 2015, China’s Harbin Bank (a city commercial bank) and Russia’s Sberbank (the largest savings bank in Russia by assets) initiated the Sino-Russian Financial Alliance as a nonprofit cross-border financial cooperation organization. 

The alliance’s primary goal is to establish an efficient mechanism to support Sino-Russian trade, facilitate comprehensive bilateral financial cooperation, and promote the use of local currencies in bilateral settlements. This financial alliance had 35 initial members, including 18 Chinese financial institutions (small and medium-sized banks, insurance companies, and trust investment companies) and 17 Russian institutions. When the alliance was launched, Sun Yao, vice governor of Heilongjiang province, said that the alliance “is an important platform to facilitate the development of the China-Mongolia-Russia Economic Corridor.”  READ MORE...

China Controlling Global Economy

China wants its currency, the yuan, to replace the U.S. dollar as the world's global currency. That would give it more control over its economy.

As China's economic might grows, it's taking steps to make that happen. A slim majority of institutional investors see it as inevitable, but don't say when.1 Could we see a switch from a greenback- to a redback-dominated world? If so, how and when would that happen? What would be the consequences?

Before the yuan can become a global currency, it must first be successful as a reserve currency. That would give China the following five benefits:

1. The yuan would be used to price more international contracts. China exports a lot of commodities that are traditionally priced in U.S. dollars. If they were priced in yuan, China would not have to worry so much about the dollar's value.
2. All central banks would have to hold yuan as part of their foreign exchange reserves. The yuan would be in higher demand. That would lower interest rates for bonds denominated in yuan.
3. Chinese exporters would have lower borrowing costs.
4. China would have more economic clout in relation to the United States.
5. It would support President Jinping's economic reforms.

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