š±Chinaās Plan to Replace the Dollar?
China is planning to kill the dollar by partnering with France and Saudi Arabia. Will this plan work? ReadOn!
China has just waged a war against the US dollar.
No, not the all-out, guns-blazing war.
This is a strategic war, a smart game of chess.
China is strategically trying to checkmate the US dollar.
From buying LNG in yuan to negotiating with Saudi Arabia to buy crude oil in yuan, it is trying everything.
How will this impact the US Dollar?
Worry not, sit back and read on as we decode Chinaās strategy.
š Decoding Chinaās Strategic Moves
Before we dive into Chinaās moves, let's give you some context.
The dollar is the currency that rules the world.
Most trade in the world is in dollars.
Want oil? Shell out some dollars.
Want metal? Dollars, baby!
Dollar supremacy means US supremacy.
The recent sanctions on Russia are proof.
Russia is no longer able to access the dollar reserves it had because of the sanctions imposed by the US.
Now, this has scared China.
China doesnāt want the US to have so much power, influence and control.
It wants to make the yuan the next global currency.
How?
By settling trades in yuan.
Recently, it finalised an agreement to buy LNG (Liquified Natural Gas) from TotalEnergies, a French energy company, in yuan, and not dollars.
How does that help?
You see, China is one of the biggest importers of LNG.
It buys huge amounts of it. That means it pays a lot of money for it.
If it makes these payments in yuan, then the receiving country, France, now has a lot of yuan reserves.
Now, letās assume China cracks such deals with 4-5 other countries too.
All of these countries now have lots of yuan deposits instead of dollar deposits.
So they start trading in yuan instead of the dollar.
Thatās it.Ā
That would mark the slow and steady rise of the yuan, maybe making it even more popular than the dollar!
Ā
China is also talking to Saudi Arabia to allow it to buy crude oil in yuan.
And to convince Saudi Arabia, it has helped broker peace between SA and Iran, making the situation in the Middle East less tense (Let us know if you want an explainer on this situation).Ā
Looks like this has impressed Saudi Arabia.
Saudi Arabia has taken a 10% stake in Rongsheng Petrochemicals and is also planning to set up a petrochemicals plant jointly with China.
This growing closeness of Saudi Arabia and China poses a risk to the US.
If Saudi Arabia agrees to sell oil in yuan to China, the dollar could be in serious trouble.
Russia has also committed to start using yuan to pay for trade in Asia.
But if you read between the lines, all of these are just ātalksā or ācommitmentsā.Ā
None of this has been implemented yet.
Yes, people are losing faith in the US Dollar, but it may not be time over for the dollar yet.
How so?
š”ļøThe USAās Hedge
Well, Saudi Arabia may be flirting with China but it isnāt going to divorce the US any time soon.Ā
You see, the Saudi Riyal is pegged to the US dollar.
So, if the US dollar weakens, its own currency could weaken.
But letās assume that Saudi Arabia does want to break up with the US.
It starts trading crude with China in yuan.
It would still make only 7.1% of the global crude trade. The remaining would still be dominated by the US Dollar.
It would have to convince a lot of other countries to start trading with it in the yuan.
Sounds like a Herculean task? It is.
Now, you must be thinking: France was pretty easy to convert. Why wonāt other countries agree?
Well, France was easy to convert because it has always been a China ally.
The two countries conduct billions in trade every year. So, France can use the yuan for trade with China alone.
Convincing other countries, especially Western nations who are getting wary of Chinaās growing dominance, would be super difficult.
But that doesnāt mean the dollar is at peace. Yes, the yuan may not be replacing the dollarā¦
But, the dollar could be losing its throne.
š A Whole New World
Other countries are taking a cue from China and trying to sell more trade in local currencies.
Like India. India is also settling trade with Russia in the Rupee.
This could create a new world order, where trade partners ignore the dollar and settle trades in each othersā currency.
This will be a win-win situation for everyone involved because:
The dollar will be weakened, resulting in dollar-backed trade becoming cheaper
Countriesā reliance on the dollar will decline and so will the USā influence on countries
India could also take a cue to look for more trading partners willing to trade in the Rupee. This would help strengthen our currency and our economy.
Do you think defeating the dollar is this easy? Will these moves help dethrone the dollar?
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Very informative article. Thank you team read on. one sentence - Saudi Riyal is pegged with USD lead me to google peg and came to another article. Got to know about this today only. Pegging of currency.
https://www.investopedia.com/articles/forex/061015/top-exchange-rates-pegged-us-dollar.asp
yuan jitna nahi chahiye because china is more evil than USA. local currency humari pehli prefernce and second prefernce BRICS currency. BRICS currency iss sal launch ho jayegi