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...

Hypersonic Missiles

Imagine if a foreign country launched a nuclear attack on the continental United States and the Pentagon had only six minutes to respond. That’s the potential of a new generation of weapons on the horizon, according to a recent Rand Corp. report.

Rand is urging the United States, China, and Russia to form an agreement on how to handle hypersonic missiles, which travel at more than five thousand kilometers per hour (about 3,100 mph). Hypersonic weapons are more than five times faster than a regular cruise missile and would not be detected by U.S. air defense systems as early as ballistic missiles.

The United States, China, and Russia are all known to be close to achieving deployable hypersonic systems and are ahead of other countries, according to Rand.

“Hypersonic missile proliferation would increase the chances of strategic war,” said Richard Speier, lead author of Rand’s report, in a press release.

The speed forces quick military counter-decisions with potentially disastrous effect. “It would give nations an incentive to become trigger-happy,” he said.

The United States likely has less than a decade to counter the proliferation of hypersonic missiles, though they are not yet operational, according to the report. Current missile defense systems would not be effective at defending against hypersonic missiles, and Rand urges changes to the existing missile technology control regime to anticipate and address them.

Crunched for time with dire stakes, countries might adopt a so-called launch-on-warning doctrine, or they might just strike first. Without time to consult a traditional chain of command, nations might feel compelled to give the military command and control, increasing the likelihood of accidental war. Countries might also scatter their weapons in order to better respond, which would give terrorists greater opportunity to steal the weapons for themselves, the report said.

“None of these options is very good,” Speier said.  To Know More About Hypersonic Missiles and Possible War, CLICK HERE...