China: The yuan overtakes the dollar for the first time
It’s a done deal. China now uses the yuan more than the dollar in its international trade. A requiem for the imperial currency.
The end of privileges
The war in Ukraine is accompanied by profound political, diplomatic, ideological and monetary transformations.
The dollar, as the main international reserve currency, conferred immense privilege on Washington. However, this monetary dominance has been eroding since the early 2000s. Since the invasion of Iraq, to be precise.
Before 2000, the dollar accounted for 72% of international reserves, compared with less than 59% in 2023. The speed of this decline has increased since the start of the war. The dollar’s share is at a 27-year low. And while almost 70% of world trade was conducted in dollars in the early 2000s, this proportion is now around 40%.
This slow turnaround means trouble is brewing for the United States. At this rate, the empire will soon no longer be able to afford to print its trade deficit without fear of seeing its currency depreciate.
This privilege, however, comes at a price in the form of gargantuan debt. The United States is the most indebted nation in the world.
This debt should be seen as a rubber band, stretched taut and unyielding as long as the world continues to use the dollar. The edifice would collapse if central banks abandoned the dollar.
If this scenario were to take shape, the United States would default, as it did in 1971, when Nixon decreed the end of the Gold Standard. Bearing in mind that almost 25% of US public debt is held by foreign central banks…
A penalty too far
In fact, the US default has already begun. The seizure of $300 billion (and euros) belonging to Russia has not gone unnoticed. Nor has the disconnection of the SWIFT network or the seizure of private bank accounts, houses, cars, boats and planes belonging to private companies.
The world is anxiously discovering that the West won’t pay and that the dollar is a trap. The world’s leading nuclear power may have been robbed, but no one is safe. Anyone who refuses to align themselves with American foreign policy faces two instant reprisals:
- Disconnection from the SWIFT network, which means no longer being able to trade with the rest of the world.
- The looting of foreign exchange reserves and all assets invested in the West (real estate, stock market shares, etc.).
Any country (except Russia) would collapse in hyperinflation in the face of such financial weapons of mass destruction.
As a result, dozens of countries are taking advantage of the fact that the West is at loggerheads with Russia to step into the breach by trading more in their national currencies. China is spearheading this monetary emancipation.
The yuan was used in 49% of China’s international transactions in the second quarter, overtaking the dollar for the first time! According to the Chinese Central Bank, international payments in yuan will reach 42,100 billion yuan ($5,850 billion) in 2022.
China and Russia now conduct 80% of their trade in yuan and rubles. Israel, a staunch ally of Uncle Sam, has added Chinese yuan to its reserves. Even France accepts the yuan.
The list goes on…
Just recently, Brazil and China signed an agreement to trade in their national currencies via CIPS, China’s equivalent of the SWIFT network. The yuan has replaced the euro as the second reserve currency, and Brazilia is calling for the creation of a South American monetary union to replace the dollar.
Saudi Arabia sells oil to Kenya in Kenyan shillings, and the petroyuan alternative to the petrodollar could be activated at any time.
The Russian rouble is the dominant currency of the Eurasian Economic Union. Turkey also uses it, as does the yuan. India has signed agreements with 20 countries, including the UK, Germany, Israel, Russia and Singapore, to use the rupee for trade.
Recently, New Delhi and Abu Dhabi announced that they would be abandoning the dollar for bilateral trade. More than $85 billion a year will henceforth be exchanged in rupees and dirhams. The same applies to Indonesia.
Non-Western global and regional organizations are also catching up. The Association of Southeast Asian Nations (ASEAN) has made no secret of its intention to do without the dollar.
The final touch could come from the BRICS, who are working on a new international reserve currency. It’s a thorny issue, but we’re going to have to agree, since trade in national currencies is rapidly reaching its limits. An international reserve currency is indispensable.
Bitcoin as an international reserve currency
Yours truly believes that if democracy is the worst system of government, except for all the others, as W. Churchill said, the parallel can be drawn with fiat currency.
There is no grand conspiracy. The fiat system has taken hold everywhere because it’s simply the fastest growing.
But it is inherently a ponzi scheme. The reason is that every penny in circulation comes from an interest-bearing debt. As a result, the fiat money supply MUST increase, relentlessly.
The system can only keep its books by lending more and more. The consequence is that we also have to produce more and more, otherwise the quantity of money will swell faster than the quantity of things to sell.
Unfortunately, growth means energy. And it’s becoming increasingly clear that the world will have passed its oil peak in November 2018.
Barring an energy miracle, we’re heading for ever-higher inflation. It’s not for nothing that central banks are considering raising their inflation target to 3%.
[Don’t miss out on our article: “Oil and hyperinflation”].
Degrowth means that the inflation rate will perpetually be higher than the return on debt. In this context, why would central banks hold on to debt securities, American or otherwise?
Perpetually negative real rates will be a paradigm shift in favor of stores of value such as gold.
Initially gold, but ultimately bitcoin, which is the only ABSOLUTE store of value. Indeed, it is always possible to find more gold if its value increases. This is not the case with bitcoin and its 21 million limit.
Bitcoin is both a currency and an uncensored, stateless payment network designed to replace the dollar in international trade. Even BlackRock‘s CEO has admitted the obvious.
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Bitcoin, geopolitical, economic and energy journalist.
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.