Yeah, not many are actually dedollarizing. The big ones are China, Russia, Brazil, Argentina, S. Africa, and Iran, and there are a few others. But most of these already don’t do a ton of trade with the US because they’re not on good terms politically and economically.
The common thread here is that most of these countries have one or more of the following:
poor monetary policy - e.g. in Argentina, the President has pretty much direct control over the Treasury
authoritarian leaders
poor fiscal policy
In other words, they’re not turning to the yuan because they think it’s better than the dollar, but because they’re desperate, and I’m guessing they have deals with China that are likely more beneficial to China than the countries themselves (i.e. China may be helping bail them out in exchange for some leverage).
So I’m not too worried about the yuan or another currency supplanting the dollar in a real, meaningful sense. That said, I do think it’s concerning that the US has such a large amount of deficit spending. However, I trust the US dollar more than the yuan.
BRICS has already surpassed G7 in terms of GDP when adjusted for PPP, and that’s the main force behind dedollarization. What is likely to happen is that there will be two parallel economies for global trade. One will be based on the US dollar and another on the BRICS currency.
What that means for US is that dollar based trade is shrinking, and along with it the demand for dollar. So, when US does a bunch of QE, there won’t be the same level of demand for the dollar as there war previously.
Meanwhile, the yuan in particular is valuable to countries for the simple reason that China is the biggest trading partner for majority of the countries now. Countries can always convert yuan into something tangible they need from China. The dollar has no inherent value behind it.
And I’m not sure what you mean by the yuan having more inherent value. Fiat currencies have no inherent value, they’re only worth what you can trade them for. So it really doesn’t matter if you hold yuan, dollars, or pounds, they can be easily exchanged for another reserve currency for transactional purposes.
How much the country backing the currency exports isn’t particularly important. Maybe it was hundreds of years ago when mercantilism was relevant, but it isn’t relevant today.
As the yuan grows in popularity, the dollar will certainly lose some status, but it’s not likely to crash. Look at what happened to the pound when the dollar supplanted it, or the yen when Japan’s economic growth slowed, both are still valuable and stable currencies today. So the yuan gaining popularity doesn’t spell doom for the US, it just means monetary policy will need to adjust to manage changes in demand. That’s it.
And I’m not sure what you mean by the yuan having more inherent value.
I mean that countries buy products from China which means that they can always convert yuan into something they need. This was basically the premise behind petrodollar as well. When you could only buy oil in dollars, that made dollar valuable as an international currency.
How much the country backing the currency exports isn’t particularly important.
Of course it’s important, it’s why Russia is currently trading with India in yuan instead of rupees. They can’t spend rupees on anything they need, but they can spend yuan.
As the yuan grows in popularity, the dollar will certainly lose some status, but it’s not likely to crash.
Both UK and Japan are in an incredibly precarious economic situation right now, and US has astronomic debt servicing of which is directly tied to global demand for dollars. If this demand starts shrinking then US will not be able to service the debt and will be forced to default.
Yeah, not many are actually dedollarizing. The big ones are China, Russia, Brazil, Argentina, S. Africa, and Iran, and there are a few others. But most of these already don’t do a ton of trade with the US because they’re not on good terms politically and economically.
The common thread here is that most of these countries have one or more of the following:
In other words, they’re not turning to the yuan because they think it’s better than the dollar, but because they’re desperate, and I’m guessing they have deals with China that are likely more beneficial to China than the countries themselves (i.e. China may be helping bail them out in exchange for some leverage).
So I’m not too worried about the yuan or another currency supplanting the dollar in a real, meaningful sense. That said, I do think it’s concerning that the US has such a large amount of deficit spending. However, I trust the US dollar more than the yuan.
BRICS has already surpassed G7 in terms of GDP when adjusted for PPP, and that’s the main force behind dedollarization. What is likely to happen is that there will be two parallel economies for global trade. One will be based on the US dollar and another on the BRICS currency.
What that means for US is that dollar based trade is shrinking, and along with it the demand for dollar. So, when US does a bunch of QE, there won’t be the same level of demand for the dollar as there war previously.
Meanwhile, the yuan in particular is valuable to countries for the simple reason that China is the biggest trading partner for majority of the countries now. Countries can always convert yuan into something tangible they need from China. The dollar has no inherent value behind it.
I’d like a source for that, because I’m pretty sure the EU is the biggest trading partner for a majority of countries. Yeah, it’s not a country per se, but it acts as one when it comes to trade.
And I’m not sure what you mean by the yuan having more inherent value. Fiat currencies have no inherent value, they’re only worth what you can trade them for. So it really doesn’t matter if you hold yuan, dollars, or pounds, they can be easily exchanged for another reserve currency for transactional purposes.
How much the country backing the currency exports isn’t particularly important. Maybe it was hundreds of years ago when mercantilism was relevant, but it isn’t relevant today.
As the yuan grows in popularity, the dollar will certainly lose some status, but it’s not likely to crash. Look at what happened to the pound when the dollar supplanted it, or the yen when Japan’s economic growth slowed, both are still valuable and stable currencies today. So the yuan gaining popularity doesn’t spell doom for the US, it just means monetary policy will need to adjust to manage changes in demand. That’s it.
https://www.wilsoncenter.org/blog-post/china-top-trading-partner-more-120-countries
I mean that countries buy products from China which means that they can always convert yuan into something they need. This was basically the premise behind petrodollar as well. When you could only buy oil in dollars, that made dollar valuable as an international currency.
Of course it’s important, it’s why Russia is currently trading with India in yuan instead of rupees. They can’t spend rupees on anything they need, but they can spend yuan.
Both UK and Japan are in an incredibly precarious economic situation right now, and US has astronomic debt servicing of which is directly tied to global demand for dollars. If this demand starts shrinking then US will not be able to service the debt and will be forced to default.