THERE has been talk of the People’s Republic of China trying to supplant the US Dollar with the Yuan through de-dollarization. I disagree with this assessment.
De-dollarization may be a thing now, but that doesn’t mean that the Yuan will be the next global reserve currency. As I’ve stated in previous articles, being the global reserve currency has its advantages as well as its disadvantages, and I don’t think the PRC wants the latter.
For the US, having the reserve currency status is great for maintaining a higher standard of living and servicing debt, but its main drawback is that it hollows out a large portion of their economy, and by that, I mean its manufacturing and productive sector.
Other countries know this. So while they will condemn the dollar as the global reserve currency, many won’t mention its downsides. The deindustrialization of American industry, for example, is partially because of this system. China is also aware of this, which is why I don’t see the Yuan becoming the next reserve currency.
It’s true that the Yuan has become a popular currency in Russia of late, but its growth was at the expense of other currencies, and not the dollar. Even the Chinese are reportedly still pegging their currency to the dollar, though using more informal means. And as much as the news will report on the rise of the Yuan, the PRC have strict financial controls over their economy. A reserve currency requires the elimination of such controls.
But does this mean de-dollarization is a fiction?
No, it’s actually happening, but it’s still in its early stages. The reason, I think, is that the Chinese (and the Russians and their allies) are trying to protect themselves from the weaponization of the dollar. All this, seems to me, like an insurance plan should US-China relations get worse, and if the US decides to weaponize the dollar even more, being less reliant on the dollar can help them mitigate some of the pain.
However, this does not mean there will be a new reserve currency. Just because other states are distancing themselves from the dollar doesn’t mean that the Yuan, Euro or even the Ruble will take its place. It is more likely that there will be no more global reserve currency, which is fitting for a post-globalized world./PN
