DE-DOLLARIZATION IN THE 2020s: China Leads a Global Rebellion!
History shows that no currency is meant to dominate forever. The almighty U.S. dollar is no exception, and recent signs point to a movement – not only in China but from multiple world powers – to dethrone the dollar as the reserve currency of the world.
Financial experts aren’t mincing words anymore: de-dollarization is already in effect, especially with China’s yuan gaining acceptance globally. “The long historical era of the dominance of the American dollar is coming to an end,” declared Andrei Kostin, CEO of VTB, Russia’s second-largest bank by assets.
“China understands that they will not become the number-one world economic power if they keep their yuan as a non-convertible currency,” Kostin continued. As politicians in Washington continue to weaponize the greenback, nations are banding together to push back and free themselves from dollar domination.
French President Emmanuel Macron, for example, recently warned against the “extraterritoriality of the U.S. dollar” while suggesting that Europe should cut its dependence on the dollar. Meanwhile, Mohammad Mokhber, Iran’s first vice president, insists that “De-dollarization is not a voluntary choice by countries anymore; it is the countries’ inevitable response to the weaponization project of the dollar.”
While cryptocurrency poses a long-term threat to the dollar’s hegemony, the Chinese yuan is the most prominent contender for the currency crown. We’re already seeing evidence of this because the use of the yuan reportedly overtook the dollar in China’s cross-border transactions for the first time in March.
JPMorgan analysts also observed an ongoing trend away from use of the dollar in currency transactions, stating that “De-dollarization is evident in FX reserves where USD share has declined to a record as share in exports declined.” Even U.S. Treasury Secretary Janet Yellen acknowledged the problems inherent to a weaponized dollar, warning that “There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar.”
The regions leading the anti-dollar rebellion include the BRICS nations of Brazil, Russia, India, China, and South Africa. You might not have expected South Africa to take up arms against the greenback, but the revolt is underway because Kenyan President William Ruto recently urged African countries to consider settling cross-border transactions with their respective currencies instead of the U.S. dollar.
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Even though multiple emerging regions are involved, it is China that will most likely lead the way in ending the dollar’s reign that dates back to World War II. This will be part of China’s greater ambitions to assert its prominence as a world power that are largely articulated in its Belt and Road Initiative.
A cornerstone of President Xi Jinping’s foreign policy, the Belt and Road Initiative is basically a 21st century version of the Silk Road in that it strives to link China with other parts of Asia, Russia, and Europe by land, along with the South Pacific, Middle East, Eastern Africa, and Europe by sea.
Enhanced trade between these regions (notably not including the U.S.) is part of this project. Other goals include policy coordination and infrastructure connectivity, which we’re seeing China push for now with new high-speed trains going into southeast Asia.
The overarching theme here is independence from the dollar and greater autonomy as multiple regions look to dollar alternatives for international trade and wealth preservation. The 2020s may someday be remembered as an era of dramatic power shifts, with China ascending quickly and the U.S. losing its presumptive decades-long currency dominance.
Chief Editor, CrushTheStreet.com
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