Is De-Dollarization- a new Chinese weapon?
It is well known that the US dollar is used as a world's reserve currency and all exchange between countries is done in US Dollars. Hence, US dollars is essential for today’s economy. The dollar is used as a standard currency which can be termed as “petrodollar”. This system came into action after an agreement between the US and Saudi Arabia settled in the mid- 1970s. Hence, since then Oil and every other commodity are being traded only in US dollars across the world. As per current scenario, US Dollar commands the international market by holding 70 percent of the trade transactions throughout the world. Therefore, the value of the US Dollar is high in comparison to other world currencies. Also, US Dollar accounts for 63- 65 percent in global currency reserves. All the international payments and transactions go through the SWIFT transfer where more than 10000 banks and financial institutions from 210 countries are linked. Annual payments in SWIFT
accounts for 4 billion from which daily gross payments of Dollar are in trillions. There were many factors that contributed to the introduction of de-dollarization such as United
States foreign policy, the imposition of sanctions and reduction of imports. Hence, many
countries are seeking to eliminate Dollar as standard currency. The introduction of de-dollarization intends to use other currencies such as the Chinese yuan, euro, and ruble to undertake export-import transactions among foreign countries. Moreover, re- registration of Russian jurisdiction’s holding and licensing stock markets to make all operations abide by the same rules is also taken into contemplation.
Additionally, China has been actively participating in the de-dollarization strategy. China seeks to abolish dollar as a standard currency and gain the global market share by introducing Chinese yuan as currency in international transactions. Right after the global financial crisis in 2008, the use of yuan outside China shot up for a period but did not last and started declining until recently, when started escalating again last year. To further work on this de-dollarization strategy, China got linked the Honk Kong stock market with the Shanghai exchange, in 2014, in order to let foreigners invest in Chinese capital markets.
Also, yuan-denominated gold contracts on the Hong Kong and Dubai exchanges were initiated by Chinese authorities adding to new oil contracts on the Shanghai International Energy Exchange in March last year. In recent months, China got involved with Canada and Qatar by signing agreements with them and making Canada the first offshore hub for yuan in North America by increasing the trade with Canada to 200 billion yuan currency swap, approximately 30 billion USD. China’s agreement with Qatar resulted in $ 5.7 billion currency swap between these two countries. It is believed that other OPEC countries are likely to sign up with China as they have little faith in US Dollars, the reason being export of inflation. Furthermore, taking advantage of being the world’s largest oil importer, China intends to launch crude oil future contracts denominated in Chinese yuan and convertible in gold. This strategy has the capabilities to leave a great impact on US Dollar.
China made a bilateral agreement with Iran with the purpose of increasing trade with Iran as well. The volume of trade between Iran and China accounted for $30.5 billion which is a 22 percent increase in 2017 as compared to 2016. Hence the share of the Chinese yuan increased rapidly to 40 percent in the foreign contracts which supposedly is going to accelerate in future. To conclude, many economists are of the view that it is ineluctable that the world’s largest oil importer, China will depose the US leading in international markets. Economists and Political scientists believe that however, the decline of US Dollars can take years to implement but USA will step down from the throne as a leading country in international markets.