Why Saudi Arabia Won’t Abandon The Dollar For China’s Yuan
2022-10-31
For decades, the Chinese government has been working toward establishing an offshore yuan currency basket. The yuan’s inclusion into the basket would have significantly boosted the country’s currency and trade power.
In theory, that would have made it easier for China to import goods and services from other countries and make its exports more competitive. But that plan has stalled, mostly due to the United States’ continued grip on the petrodollar. The American currency is still the reserve currency for much of the world, and no other currency can be used to settle oil trade transactions.
That means that, even though the yuan is gradually gaining more prominence in the global financial system, it will never become a viable alternative to the U.S. dollar. However, that doesn’t mean that other countries aren’t looking for other options. In fact, several countries have already decided to ditch the U.S. dollar for trade with China.
Why China Won’t Accept U.S. Dollars For A Trade
After China stepped into the global financial crisis in 2008, it started looking for ways to reduce its currency’s reliance on the United States. The yuan’s inclusion into the basket of currencies used to settle cross-border trade and balance of payments transactions would have given the Chinese currency more weight.
But that would mean that China would have to give up on using the U.S. dollar as its main trading and reserve currency. That would make importing and exporting more expensive and challenging.
The Chinese government has been exploring alternative arrangements to reduce its reliance on the U.S. currency. One option is to issue special bonds denominated in Chinese yuan. The government could also encourage Chinese companies to switch to a dual-currency system that uses the yuan and the dollar.
But none of these proposals have gone anywhere so far. Not because the Chinese government is opposed to giving the yuan more prominence. On the contrary, it seems to be very much in favor of it. But the U.S. government has been blocking all these alternative arrangements.
Why South Korea Won’t Embrace The Yuan
The South Korean government had been pushing for an expansion of the role of the yuan in international financial institutions. It had been lobbying for inclusion into the basket of currencies used to set the daily reference rate for the U.S. dollar.
If that had happened, the Korean won would have become more valuable against the yuan and other currencies. But the United States still refused to budge, so South Korea decided to drop the idea.
Instead, the Asian country will continue to push for greater use of the won in global financial markets. It will also try to get more countries to adopt its own currency, the Korean won.
The United States continues to be a major drag on the global economy. It has been violating international law by maintaining a trade embargo on Cuba and Iran. That has prevented the two countries from signing bilateral trade and financial agreements with other nations.
Why Japan Will Probably Never Swap Yen For Yuan
The Japanese government is a strong advocate of the “free flow of money,” which it defines as the freedom to exchange funds between any two countries without restrictions or the need to obtain a license.
That means that, just like the United States, Japan doesn’t want its currency, the yen, to become a reserve currency. It fears that would give foreign countries too much power over its monetary policy.
Japan is also very worried about the possible negative consequences of a Chinese yuan revaluation. It isn’t just limited to the impact on the Japanese economy. If China were to decide to start printing more yuan to ease trade tensions, that too would likely drive the Japanese yen up. That would make Japanese exports more expensive and hurt their competitiveness in the global market.
India Will Also Give Up On The Dollar
The United States’ control over the global monetary system has been weakening for years, thanks to the rise of other currencies and the decline in international trade.
A big reason for that is India’s decision to ditch the dollar for trade with Iran, Iraq, and other nations that don’t use the U.S. currency.
The country is also in the process of establishing its own oil-based currency, the New Indian Currency Note (NICN). That will make it easier for the country to import crude oil and gas from Iran and other countries.
The Indian government has been very clear on one thing. It doesn’t want another basket of currencies. It wants to completely replace the dollar as the global reserve currency.
So far, it hasn’t been able to do so. But it isn’t ruling out the possibility that one day, it could be successful.
Turkey Will Seek Chinese Yuan Replacements
Turkey has been looking for ways to reduce its reliance on the United States for some time. One way the country has done so is by investing in Russian and Chinese infrastructure projects.
In a recent interview with Haberturk, the Turkish president, Recep Tayyip Erdogan, reinforced this idea, saying that his country was planning to replace the dollar with the Chinese yuan as its main foreign currency.
This follows a series of meetings that Erdogan had recently with Chinese leaders. During those meetings, the Turkish leader said that his country was planning to establish a bilateral currency agreement with China.
However, there was no mention of which currency that would be. It’s likely that the Turkish leaders were talking about the Chinese yuan rather than the Russian rouble.
Brazil And Russia Plan To Use Both The Yuan And The Dollar
Many analysts and experts have been predicting that the dollar will lose its status as the world’s reserve currency in the next couple of decades. They’ve even been talking about 2022 as the year that could happen.
That has prompted many countries to start stockpiling other currencies. The countries most likely to do that include China and Russia, which have a combined population of nearly 3 billion people.
That could make it more difficult for the United States to manipulate the global financial system. It would also make it harder for the United States to attack one country with military force.
It would also force the United States to become more self-reliant, dealing with problems in-house instead of using external bailouts and threats of force to extort concessions.
Summing up
For decades, the Chinese government has been working toward establishing an offshore yuan currency basket. The yuan’s inclusion into the basket would have significantly boosted the country’s currency and trade power.
But that would have to be done by giving up on the U.S. dollar as the global reserve currency. The Chinese government has been exploring alternative arrangements to reduce its reliance on the U.S. dollar. One option is to issue special bonds denominated in Chinese yuan. The government could also encourage Chinese companies to switch to a dual-currency system that uses the yuan and the dollar.
None of these proposals have gone anywhere so far. Not because the Chinese government is opposed to giving the yuan more prominence. On the contrary, it seems to be very much in favor of it. But the U.S. government has been blocking all these alternative arrangements.
The United States continues to be a major drag on the global economy. It has been violating international law by maintaining a trade embargo on Cuba and Iran. That has prevented the two countries from signing bilateral trade and financial agreements with other nations.
The Japanese government is a strong advocate of the “free flow of money,” which it defines as the freedom to exchange funds between any two countries without restrictions or the need to obtain a license.
India is also very worried about the possible negative consequences of a Chinese yuan revaluation. It isn’t just limited to the impact on the Japanese economy. If China were to decide to start printing more yuan to ease trade tensions, that too would likely drive the Japanese yen up. That would make Japanese exports more expensive and challenging.
The South Korean government had been pushing for an expansion of the role of the yuan in international financial institutions. It had been lobbying for inclusion into the basket of currencies used to set the daily reference rate for the U.S. dollar.
If that had happened, the won would have become more valuable against the yuan and other currencies. But the United States still refused to budge, so South Korea decided to drop the idea.
Instead, the Asian country will continue to push for greater use of the won in global financial markets. It will also try to get more countries to adopt its own currency, the Korean won.
The United States continues to be a major drag on the global economy. It has been violating international law by maintaining
