China moves to crush the Dollar
Tue 9:13 pm +01:00, 19 May 2020China’s new cyber-money, e-RMB (Ren Min Bi, meaning People’s Money), or Yuan, is currently being tested in several Chinese cities, including Shenzhen, Suzhou, Chengdu, and Xiong’an. In these cities it has almost universal acceptance, i.e. for salary payments, public transportation, food and most retail shopping.
The use of digital money is nothing new in China. Today about 90% of all monetary transactions are electronic, for example through WeChat and AliPay, but they do not replace the existing cash currency.
Commodity pricing today mostly dollarized, will be priced by China in yuan and traded in crypto-yuan. Yuan pricing for commodities, such as gold, crude oil and iron ore, has already started. As China is recovering from the pandemic more quickly than the rest of the world, relatively high-returning yuan-denominated investments and commodity assets will become more attractive.
The non-interference factor of a Chinese Central Bank backed crypto-currency is an additional security element that will further boost the Chinese Yuan as a reserve currency. Already now, countries around the globe are sick and tired of US meddling in their international transactions and especially with US sanctions – that may come at a whim – every time a country demonstrates her sovereignty, or disobedience to US dictates. This leads many countries that may not speak out publicly for fear of sanctions, to gradually and quietly divesting their dollar holdings into Chinese yuan.
A tipping point may be reached, when about 50% of world trade and world reserves are denominated in yuan. At this point it would be likely that the worldwide dollar hegemony will be no more, as it may be displaced by the yuan.
Several leaders of countries were killed for attempting to replace the dollar for trading with other currencies. For example, Saddam Hussein, for his intent to use the euro for trading Iraq’s hydrocarbon riches, and Libya’s Gadhafi, when he wanted to introduce the Gold-Dinar as a Pan-African trading currency, thereby freeing Africa from western monetary slavehood. As we all recall, he was literally lynched by NATO on 20 October 2011, at the initiative of Hillary Clinton with the strong support of then French President Sarkozy. By the way, this western monetary stranglehold on Africa prevails as of this day – a new-old kind of colonization, nobody in the western mainstream reports on.
Once the new e-RMB (yuan) has been successfully tested locally it will be launched internationally. While China’s new PBC-backed cyber-currency’s internationalization will make the yuan even more attractive among trading partners – and also as a reserve currency, China may simultaneously divest its huge reserves of US Treasury bonds (about US$1.2 trillion) into purchasing assets abroad paid in US-dollars. The Belt and Road investments may be a suitable vehicle to reduce dollar holdings at home.
In the current high corona debt-crisis around the world, especially the Global South, China may also consider a program of Debt Jubilee (debt forgiveness) to the poorest partner countries – which may be already or potentially be future Belt and Road associates.
At present and since October 2016, the Renminbi (Chinese yuan) is part of a 5-currency basket at the IMF that constitutes the Special Drawing Rights (SDR), the world’s ultimate virtual reserve currency. The SDR share distribution is US-dollar 41.73%, euro 30.93%, Chinese yuan 10.92%, Japanese yen 8.33% and the British pound 8.09%. This currency allocation to the SDR is disproportionate with regard to the economic strength of the respective countries, especially China, the world’s second largest economy, rapidly moving towards first place.
China may want to vigorously renegotiate with the IMF her currency proportion in the SDR, as well as reviewing country quotas which by now are out-of-line with member countries economic weight. An IMF capital increase is overdue. The IMF capital base today is SDR 477 billion (US$ 677 billion). In addition, there is the temporary New Arrangement to Borrow (NAB) which in January 2020 has been doubled to SDR365 billion (US$ 475 billion), a total resource-base of about US$ 1.15 trillion. Yet, the IMF already today foresees US$ 1 trillion for additional corona debt lending and debt forgiveness. Since the NAB is only a temporary arrangement, a quota increase and review, i.e. a proper adjustment for China’s economy, is more than overdue.
A quota adjustment in favor of China and the corresponding adjustment of the yuan’s proportion in the SDR basket would further enhance China’s currency vis-à-vis the rest of the world. This coupled with an incorruptible cryptocurrency controlled by Chinas Central Bank and possibly backed by gold, would be a formidable reserve currency that most countries would like as their chief reserve asset. This, of course is what Washington is afraid of. It would clearly endanger and probably crush the global US-dollar hegemony.
The world would be a better place for it.
Therefore, the current China bashing and attributing guilt for spreading and mismanaging the corona virus, is a sheer farce – a treachery of the world, a deviation of the real reason behind Trump’s attempt to demolish China’s reputation around the globe, namely by doing so, hoping to destroy the rise of China and the appreciation of the Chinese yuan, and thereby the yuan’s attractiveness as an investment currency for most of the rest of the world.
This is pretty similar to the real reason for the 2018-2019 US-China trade war, initiated by President Trump, had the objective of ruining the yuan’s reputation in the world arena. To no avail. Washington eventually quietly and unceremoniously lost the conflict over trade. Despite Trump’s loud declarations to the contrary, the US needs China much more than vice-versa. Just look at the Chinese supply chain which the west, in particular the US, cannot replace from one day to the other.
Under President Xi Jinping’s leadership, China has switched gears rather fast. Preparations to orient towards Asian markets are in full swing. China is enhancing relations with Asian markets, i.e. the ASEAN countries, plus Japan and South Korea.
Members of the SCO (Shanghai Cooperation Organization) are also a trading market China is already engaged in and may further strengthen it. The SCO, in addition to China and most of the Central Asian countries, include also Russia, India and Pakistan – and Iran is waiting for imminent admission. Others, like Malaysia and Mongolia are in observer status and also slanted to become SCO members in due course.
The combination of SCO, ASEAN-plus 3, amounts to more than half the world population and accounts for more than a third of the world’s economic output. This is a formidable global “market share” – and will likely increase with every atrocity – military and economic – Washington is committing around the globe.
With her new crypto-currency which eventually will be internationalized, China is well on her way to fully dedollarize, with the cyber-yuan replacing the US-dollar as the key trading and main reserve currency and to displace the United States as the world’s financial and economic hegemon.
The current China bashing does not prevent China from forging ahead with her economic activities – trade – and especially the unstoppable Belt and Road Initiative (BRI) via maritime and land routes, already counting on 160 partners (about 120 countries and some 40 multinational organizations) on four continents. This revolutionary global development scheme will require trillions of yuans and dollars for investments. It will also be generating trillions in revenues over time, shared with BRI partners. All towards a common future for mankind – a world moving towards an equilibrium with justice, harmony and peace.
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Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; New Eastern Outlook (NEO); RT; Countercurrents, Sputnik; PressTV; The 21st Century; Greanville Post; Defend Democracy Press; The Saker Blog, the and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. He is a Research Associate of the Centre for Research on Globalization.
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