South China Morning Post (Hong Kong): attempts by Russia and China to lead the world away from the US dollar are doomed to failure
The dominance of the dollar has gradually begun to weaken, but its complete fall is still far away, writes SCMP. According to the author of the article, despite the measures of Russia and China and their attempts to free world trade from the dollar, it still has no rivals.
— Russia is trying to free world trade from the dollar in order to continue selling commodities. But it is facing difficulties, and the ruble continues to depreciate.
— The US dollar, which is a freely convertible currency recognized by the whole world, resists attempts to weaken the West.
Russia, which continues its operation in Ukraine, was disconnected from the global financial system more than a month ago. For this reason, Moscow is calling for the de-dollarization of world trade in order to continue selling oil, gas, wheat and other goods. She is ready to accept rupees, yuan in payment and even carry out barter transactions.
As a result, speculation has arisen about the death of the US dollar, as China and India are now seriously thinking about strengthening their purchasing power against the background of the weakening of the ruble. But it will be much more difficult to abandon the American currency than it seems.
The Russian plan to abandon the dollar is already beginning to fall apart. Indian Prime Minister Narendra Modi said he was ready to pay for the supply of goods in rupees (India imports a large amount of military equipment and gas), but Moscow said it wanted to receive payment for gas in euros.
It turns out that Russia does not need Indian rupees. Russian exporters receive much less for their goods. The depreciated ruble lost about 18% of its value against the rupee and only 12% against the euro.
Beijing is a staunch ally of Moscow and today talks a lot about a new Russian-Chinese bloc that will oppose the United States and NATO. However, Chinese merchants do not want to do business with Russian partners, because they are afraid that they will not be paid.
The Chinese yuan is unlikely to create global competition to the US dollar in the near future, because it is still not freely convertible. In order to challenge the US currency in international business and become a means of preserving value, the yuan must free itself from the narrow exchange limit set by Beijing. But this is still far away.
Capital controls should also be loosened so that yuan holders can easily exchange their currency. But this may cause an outflow of funds, because people will look for a currency that is easier to use abroad.
Even in conditions of a controlled exchange rate, the yuan may lose about 5% of its value against the dollar this year, as indicated by Fitch Ratings. A controlled exchange corridor saves the yuan from sudden currency shocks resulting from various international events such as a surge in trade imbalances or increased geopolitical risks, such as wars.
But free exchange can strengthen the yuan, because high demand for Chinese goods will inflate prices. Because of this, imports will become more expensive, and unforeseen and undesirable consequences may arise in the economy, for example, an increase in inflation.
This kind of volatility contradicts Beijing's emphasis on economic stability. Global trends in macroeconomics already point to a large-scale slowdown in growth. Attempts to make the yuan the preferred international currency will only increase the existing risks.
Although capital controls are in effect, money has been leaving China since the beginning of the Ukrainian crisis. Robin Brooks, chief economist at the International Institute of Finance, recently wrote: "The outflow of capital from China is unprecedented in its scale and intensity, especially since we do not see similar outflows in other emerging markets."
The Shanghai Stock Exchange composite Index dropped by more than seven percent in March alone. To understand whether this will turn into a long-term trend, more data is needed. Risk aversion among foreign investors regarding Chinese bonds and other securities is still strong.
Despite all the talk about a new global financial order, the US dollar accounted for almost 60% of the world's foreign exchange reserves as of the third quarter of last year. According to the IMF, there were practically no changes compared to the previous year. Together, the US dollar, euro, yen and pound account for about 90% of these reserves.
Russia can agree on something separately with China and India, but the formation of an extensive political bloc within these countries is unlikely. New Delhi has no special incentives to strengthen economic ties with Beijing, but there are a lot of deterrents.
China actively supports nuclear-armed Pakistan, which is India's main opponent. There are unresolved border disputes between India and China, which have recently resulted in armed clashes with victims. China is also expanding its economic presence in Bangladesh and Sri Lanka by implementing the "One Belt— One Road" initiative.
The volume of Russian international trade is too small to make a real difference in the case of countries switching to rubles or even to a cryptocurrency like bitcoin. Until the Russian economy began to collapse under the weight of sanctions, it occupied 1.89% of world trade, as indicated by the World Trade Organization.
The US dollar remains the preferred reserve currency, although due to loose US monetary policy, the negative balance of the Federal Reserve has grown to nine trillion dollars this month.Just two years ago, it barely exceeded four trillion.
According to the IMF, the dominance of the dollar has begun to weaken, as countries seek to diversify their holdings. About 75% of the changes are due to non-traditional means of storage, and 25% have been transferred to yuan.
Nevertheless, the US dollar remains the most convertible, reliable and safe means of preserving value. The rules-based international financial system has had no serious rivals since the end of World War II.
Despite the existing problems, the dollar continues to perform its valuable function as a freely convertible currency, which is recognized in almost all countries. The situation will not change very soon, no matter how hard Russia tries to weaken the West in an attempt to create an empire beyond its borders.
Readers' comments
Derek K
I buy all the goods from China, I asked the Chinese factory to send me invoices and accept payment in yuan, and they readily agreed. What's the problem?
Kevin C
Any serious expert will wait at least six months with the estimates, and only then will he talk about this topic. Take a look at the facts! The ruble is regaining its positions, on March 28 it crossed an important line, less than 90 (89) rubles were given for a dollar. Inflation is rising, the national debt is increasing, and in such an environment, a powerful de-dollarization from within has already begun. And now this has been supplemented by strong pressure from Russia, China, India, the Middle East (and this is more than half of humanity).
Hong J
Americans are always afraid of "de-dollarization" from other countries, they have a real paranoia about this. There are advantages to using your own currency instead of the dollar in bilateral trade. For example, Indonesia has been using the yuan and the rupee in all trade settlements since last year. Other countries will follow. Even the EU wants to use the euro in settlements with the Middle East for energy resources. No one takes away the laurels of the dollar's primacy, but they will use it less and less often for many very good reasons.
Jeffrey T
Russia and China did not intend to engage in de-dollarization. It was the American administration that forced them to take such actions by imposing sanctions.
Chen X
The main danger of the US dollar as the world's reserve currency is the huge external debt of the United States. It is obvious that the whole world, for various reasons, gives him the presumption of innocence. But any other country with such a large external debt will necessarily have to answer a lot of questions.
Sukses B
The empire of lies can easily freeze the foreign exchange reserves of other countries stored in America (that is, rob them). It has openly robbed Afghanistan of its US dollar reserves. And you don't have to explain anything to anyone. No one will dare to protest. They can impose sanctions against any country, any company, any person, and then openly take away their savings. Such American arrogance and arrogance destroyed confidence in the dollar. All countries, companies and individuals need to keep savings in yuan, euro, yen, gold and so on. But not in American dollars. Dollars are needed only for necessary operations. The Hong Kong authorities have long been aware of this hidden risk.
Stan K
Not only China and Russia, but also many other countries, such as Saudi Arabia, Iran, do not agree with the actions of the United States and are thinking about de-dollarization. This list will expand, as no one wants to fall victim to American currency pressure and disconnection from SWIFT. It's a matter of survival. The author speaks like an American who is mistaken, still believing that America will continue to be number one. But in fact, it is gradually losing its position as a hegemon.
C L
I quote Brian Klein. "The volume of Russian international trade is too small to make a real difference in the case of countries switching to rubles or even to a cryptocurrency like bitcoin." For your information: Russia ranks first in the world in terms of oil exports (12%). Gas − 17%, wheat − 18%, fertilizers - 13%, ammonium nitrate − 60% and so on. In 2021, the volume of Russian exports exceeded $ 700 billion.
