As the sun was settling down on the British Empire, the US was flexing its economic and arsenal might to get crowned as the next Superpower by replacing Britain. With the Second World War, the dream of becoming the Superpower transformed into reality sooner than expected as many European countries, including Britain, financed their war efforts by borrowing money heavily from the US. Once the war was over, the US was crowned as the undisputed Global Superpower and with that, the US dollar also became the preferred Global Currency by replacing the British Pound!
With time, the US dollar became more resilient and powerful. In recent times, US dollar has been used frequently as an effective mean to punish the violators and to force them to respect the international laws in bilateral and multilateral disciplines.
In other words, as part of economic sanctions, the dollar has been weaponised and used against the autocratic, dictatorial and rogues regimes to punish their aggressive acts, like forceful and illegal occupation of other sovereign nations territories, human rights violations, suspension of the democratic institutions, detentions and prosecutions of the political dissidents, silencing the freedom of press, closing the opposition media outlets, arresting the impartial journalist, religious leaders and minorities, etc.
Petro dollar
Since the early days of the OPEC, the US dollar has been the currency of choice for trading oil. However, as explained above, with its robust forte and hegemony in the recent times, the US is frequently using the dollar as the weapon of choice for imposing the economic sanctions against the violators of the existing world order and its nemesis by freezing their US dollar-based bank accounts, and other assets. In the recent past, two major oil producers and founding members (Iran & Venezuela) of the OPEC have been put on economic sanctions, including not allowing them to have access to the SWIFT system and their bank accounts have been frozen. As a result of this, many countries are thinking seriously how to balance the US dollar’s continued global reach and power.
In March of this year, Saudi Arabia, the leader of the OPEC, announced that it had decided to accept Chinese Yuan currency for its oil trading.
This announcement has stunned the OPEC community and the oil importing countries. Also, it has sent a message to the global community to support other currencies parallel to the US dollar for international commerce and trade. Additionally, and most importantly, it has further strengthened Chinese currency. Other countries that are part of the BRI (Belt & Road Initiative) are also planning to use Yuan for purchasing their energy needs not only from Saudi Arabia but also soon from the other GCC (Gulf Cooperation Council) members. If this trend will continue, soon the Chinese Yuan will become the preferred currency for trading oil & gas by majority of the countries (>145 BRI members) of the world and as a result, the Petro-dollar will lose its hegemony.
Digital Yuan (d-Yuan)
Introduction of the digital Yuan (d-Yuan) by China for trading initially among its own bloc of nations, besides its acceptance for the Oil & gas trading will break the US dollar’s hegemony as the global-reserved currency. And if this happens, the SWIFT will also lose its unique importance as the nerve center for processing the dollar denominated global transactions.
Currently, Yuan (Fiat currency) is not traded openly beyond Chinese borders and also has restrictions by Chinese central bank how much of Yuan can get out of the country. Also, even if it will be allowed for its free movement beyond its borders, Chinese central bank has to print an enormous number of Yuan-notes for the International transaction settlements outside China.
The revival of the ancient silk route by China under the BRI and offerings of the financial assistance to the other countries (non-BRI members) and emergence of China as the new superpower, loss of the Petro-dollar’s monopoly and the US dollar’s weaponisation, all have accelerated the efforts for finding a new global currency. Continued escalation in the Russian-Ukraine war, and non-stop economic sanctions enforcements by the US and its allies has added further momentum to voices for a new global currency need.
This backdrop has created the perfect conditions for launching of the d-Yuan by China as the next global currency to break the long-standing hegemony of the US dollar in the global capital, financial and investment markets that will run parallel to the US dollar.
The d-Yuan will be the dominant currency used in the trade and commerce among the Chinese bloc member countries. Thus, the recent introduction of the d-Yuan and its current limited rollout in major Chinese cities using the existing cashless transaction infrastructure is paving the way for its broader use in the global trade and commerce. Additionally, successful use by the foreign athletes and visitors during the winter Olympics has also reinforced d-Yuan as the most viable currency against the US dollar. By wide scale adoption at national and international levels, d-Yuan will not only eliminate the need for massive amount of physical currency (notes) printing but will also eradicate Yuan’s potential manipulation by the unfriendly currency traders, like it happened during the Asian currency crisis in the late 90s’. Also, d-Yuan’s deployment will eliminate all kinds of restrictions for its cross-border transactions.
Banking outreach and corruption
Additionally, the d-Yuan will also help the rural communities where banks are not easily accessible by millions of its citizens or who have no bank accounts and thus do not benefit from the current currency-based banking system. Through the d-Yuan banking, governments (local, provincial & central) will be able to help the citizens timelier and effectively in times of disasters. The digital currency (d-Yuan) will also eliminate the go-betweens and the currency exchanges, thus giving more purchasing powers directly to the citizens. Loss of money during counting, confusion in knowing the denomination value of the notes (particularly by the seniors) or stealing by the pick pocketers will be things of the past.
Since every transaction will be recorded and transparent, the d-Yuan will make the money laundering, illicit financing, and deeply rooted corruption of all kinds and at all levels of the society and party, next to impossible.
How the d-Yuan and the d-dollar (USA) will relate to each other and how its real purchasing powers will be determined against the other currencies in the global currency basket, only time will tell.
Copyright Business Recorder, 2022