The dominance of the US dollar in international trade and as a reserve currency has been a subject of debate for decades. While the dollar’s position has remained strong, the Chinese renminbi is making gradual strides towards becoming a meaningful contender in the global currency landscape.
- Lula da Silva, Brazil’s former president, questioned the need for every country to trade in dollars.
- China has negotiated bilateral currency swap agreements totaling 3.7 trillion renminbi ($550 billion) with at least 39 central banks.
- Since 2010, offshore renminbi markets have sprung up in 24 cities around the world, with $200 billion deposited in offshore accounts by July 2021.
- The Chinese renminbi’s growth as a reserve currency is limited by capital controls and restricted convertibility into other currencies.
- The euro has established itself as the second-favorite reserve currency and an alternative to the US dollar in international transactions.
- The Chinese currency is gathering momentum to potentially surpass the yen and pound in the reserve-currency race by 2043.
- China has extended over $170 billion in liquidity support to more than 20 countries, many of which are part of the Belt and Road Initiative.
Dollar hegemony is beneficial for the US, its government and most of its citizens — and is likely to last for the foreseeable future.
US Dollars chellenges?
- China, Russia, and Saudi Arabia formed a trade alliance due to significant global trade imbalances in 2022.
- These three countries had the largest trade surpluses, totaling $1.43 trillion in 2022.
- The largest trade deficits were held by the US ($1.19 trillion), the EU ($432 billion), and India ($273.5 billion).
- French President Macron called for Europe to reduce its dependence on the US and avoid following its lead on issues like Taiwan.
- The article suggests that the trade alliance aims to create an alternative to the US dollar and Euro by trading in their own currencies.
EU’s trade deficit with China and Russia increased by 58.1% and 100% respectively in 2022.
The trade imbalance has challenged the credibility of the US dollar and the Euro, leading countries to seek alternatives for trade and settlements.