Ĭountries that are economically dependent on China may also be attempting to curry favor with Beijing, which has been encouraging the internationalization of the yuan. Argentina, for instance, announced that it would use the yuan to purchase Chinese goods as it grapples with shrinking dollar reserves. For some countries, it’s out of necessity they have to turn to the yuan, or other forms of currency, when they are unable to access dollars. It’s not just the threat of sanctions that’s prompting these moves, either. It’s about mitigating Chinese banks’ sanctions exposure, which is very hard to do.” “I don’t think that any Chinese economists believe that they can actually supplant the dollar globally,” said Gerard DiPippo, a senior fellow at the Center for Strategic and International Studies. Given the current fraught geopolitical climate, China hopes that reducing its reliance on the dollar will help act as a buffer against the threat of U.S. Why are they so desperate to diversify away from the dollar?Īs Western nations levy harsh sanctions against Moscow, Beijing is worried that it could be next. They are spinning their tires: Cross-border transactions denominated in RMB are still a tiny fraction of business done in the dollar or the euro. As part of China’s bid to internationalize its currency, a number of countries beyond Russia-including Saudi Arabia, Bangladesh, India, Argentina, Brazil, Pakistan, Iraq, and Bolivia-have recently either traded in the yuan or expressed their willingness to do so in the future.
“There is evidence that Russia in particular is making greater use of the yuan, and it’s also clear that the Chinese and others are looking for opportunities to expand the use of the yuan in trade settlement.”Ĭhina’s recent efforts have only added fuel to the fire. trade representative during the Biden administration, now at the Council on Foreign Relations. “There’s no doubt that the Russians have been forced to de-dollarize and also de-euroize their trade,” said Brad Setser, a former senior advisor to the U.S. That strangled the Russian economy-and forced Moscow to rapidly seek alternatives to both the dollar and euro. After the Kremlin invaded Ukraine in February 2022, the G-7 hit back with a spate of punishing economic measures. Much of the current attention is driven by Russia, which has ramped up its use of the yuan to cope with sweeping Western sanctions. I don’t think those two things have to go together.”
“I think the key thing here is to try to distinguish or separate the concept of de-dollarization from the end of dollar dominance. “To me, de-dollarization just means a government’s ability to reduce its dependence or reliance on the dollar,” said Daniel McDowell, a professor of political science at Syracuse University. Federal Reserve’s decisions on interest rates mark the tune that nearly every other country dances to.) It doesn’t necessarily mean that the greenback has become less vital for that country’s economy-or that its reign is over. What even is de-dollarization?ĭe-dollarization refers to a country’s effort to become less dependent on the dollar, whether by using another currency to settle cross-border trade or diversifying reserves away from the dollar by turning to gold, the Chinese yuan, or bitcoin. And second, don’t believe the hype about the demise of the dollar. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”įirst of all, gold bugs, dollar dominance came first. “Every night I ask myself why all countries have to base their trade on the dollar,” Brazilian President Luiz Inácio Lula da Silva lamented last month. sanctions, Russia and China appear to be ramping up efforts, yet again, to use the renminbi (RMB) in trade with partners, while BRICS countries are weighing a new common currency as yet another alternative. Yet talk of de-dollarization is in the air. Oil, no matter how many times Saudi Arabia and China hold their breath, is still priced in the dollar. The dollar is the world’s most widely held reserve currency and also dominates global trade. The world’s biggest economy (probably) can print greenbacks at will. Today, it is the dollar that reigns supreme. The British pound, the oldest global currency still used today, anchored the global economy, until its fall in the early, mid, and late 20th century. Yap islanders, at least those with strong backs, tended toward massive stones. The ancient Mayans are believed to have used chocolate as money traders in the Solomon Islands favored dolphin teeth. In the millennia that humans have roamed the earth, the world has cycled through a number of obscure, even unusual, currencies.
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