By Andrea Hargraves 
The euro was Russia’s first alternative to the dollar, in times of its greatest proximity to the European Union. Sanctions imposed by the invasion of Ukraine and growing economic hardships have led it to turn to a new alternative: the Chinese currency.
During the Chinese president’s recent visit to Moscow, Xi Jinping and his Russian counterpart Vladimir Putin signed deep partnership agreements between the two countries.
The impact is barely felt, but Beijing has welcomed Russia’s currency drift with open arms. It goes along with his gradual, but so far failed, attack to assert the renminbi as an international currency (the official name of the Chinese currency, in which the unit is in the yuan), steals space from the North American competitor.
Currently, 66 percent of commercial transactions around the world are carried out in dollars, compared to only 4 percent in yuan, despite the Chinese weight in global production and trading of goods and merchandise.
It is also preferable that 60 percent of global banks’ foreign exchange reserves are in dollars, compared to 20 percent in euros and six percent in Japanese yen. Although it is the second largest economy in the world, Beijing has practically no weight in this area.
Winds against the dollar
This is not the first time that China has tried to undermine the dollar’s global hegemony. But this time around, it seems like she’s more of a hit and is gaining a fan following.
At the end of March, there were a series of major decisions and discussions.
On the sidelines of Xi’s visit to Putin on the 21st and 22nd, in addition to the trade rapprochement with China, Russia has committed to using the yuan and the ruble in its dealings with various countries in Asia, Africa and Latin AmericaWhere dollars are scarce.
A week later, on the twenty-eighth, France’s Total Energies and China’s Cnooc, both in the energy sector, have signed contracts to also sell liquefied gas in Chinese currency., apart from the dollar. Although small, this was a victory for the renminbi.
On the same day, on the other side of the globe, The Finance Ministers of the Association of Southeast Asian Nations (Association of Southeast Asian Nations) have put the discussion on local currency transactions on the agenda, A program that proposes to use local currencies in financial transactions between its members not only at the expense of the US dollar, but also at the expense of the euro, yen and pound sterling.
also Indonesia at that time proposed to abandon payments by Visa and Mastercard In the countries of the region, to avoid the repercussions of sanctions on Russia.
Day 29 Brazil, the largest economy in South America, announced that all of its bilateral transactions with China will be in real and yuanand freeing up $150 billion in trade from American influence.
At the same time, Saudi Arabia is in talks with China to pay for its oil in yuanhaving admitted to making significant progress in recent weeks.
India, for its part, has decided to adopt the strategy that a good option, in a multipolar world, would also be exchange currency diversification. New Delhi has already concluded an agreement with Moscow to trade in rubles and rupeesand refused to pursue Western sanctions over the invasion of Ukraine.
China expects “the end of dollar hegemony”
The big news was the trend de-dollarizationas it is called, from the markets.
Both Beijing and Moscow were pioneers, as they started already in 2018 to reduce the weight of the dollar in foreign exchange reserves, and converted most of their transactions to the euro, which is a scenario that is now also declining.
The Kremlin is now also looking into the possibility of using the ruble and the Turkish lira in trade with Turkey.
a Global Times Chinese, The official spokesperson of the Beijing government, at the signing of the agreement between Brazil and China on the 29th, hailed “the end of dollar hegemony.”arguing that “every dominant monetary system ends up collapsing”.
In the case of the dollar, this scenario would really be urgent, the same editorial said.
With the Bretton Woods system and the oil dollar, The dollar has evolved from a dominant payment and investment tool into one of blackmail and political coercion“, charged.
And as a striking example of the use of the dollar as a “tool for political gain,” the same newspaper cut Russian banks’ connection to the SWIFT system as a “warning to the rest of the world.”
Doorbells in the USA
None of this goes unnoticed in Uncle Sam’s Land. Expert Fareed Zakaria recently wrote in Washington Post That the dollar, our “superpower,” is under threat from a “perfect storm” created by Moscow and Beijing.
“The dollar is our superpower. It gives Washington unparalleled economic and political power“When Washington spends freely it can be sure that its debt, usually in the form of Treasury bills, will be bought by the rest of the world,” he said.
He added that the current trend will only exacerbate the loss of the effect of the dollar that was felt, noting that the current share of the dollar is less than 60 percent in the global reserves of central banks, less than 70 percent recorded “20 years ago.” “And it continues to decline,” he remembers.
“Europeans and Chinese are trying to develop international payment systems outside of the dollar-dominated SWIFT system” and cryptocurrencies themselves are a threatconfirmed.
Gillian Tate, editor financial timesHe admitted that “some signs” seem to point to this The dominance of the dollar in the debt market “ends”even to reduce exposure to “toxic North American assets”.
The “recent banking turmoil in the US,” “inflation,” and the “impending battle for the debt ceiling” are factors that Tate cited that dollar-based assets are becoming “less attractive,” even in light of the ASEAN ministers’ meeting. .
Advantages of the dollar will “keep”
Despite the warnings, Not everyone is worried. One of them is economist and Nobel laureate Paul Krugman.Who sees a “bulwark” in the dollar.
In the The New York TimesKrugman enumerated the advantages that have maintained the dominance of the US currency. On the other hand, the ‘easy’ of dealing with dollars, as universally common as the English language.
currency strength On the one hand, it is based on the huge American economy, with a vast and developed “capital market”, without any kind of control Capital that can prevent people from accessing their money.”
The Nobel Prize added that these “fundamentals” “immediately exclude the yuan as an alternative to the dollar, because China has control over capital and seems unlikely to give it up.”
One of the criticisms of Beijing is the exact way it is interfering with the yuan, making it weaker than the dollar in order to favor its exports.
change the world
The trend to remove the dollar from global transactions seems to be mainly confined to the energy marketfor the time being, despite the example of Brazil and, to some extent, Russia.
However, if the government of President Lula da Silva only sees a tomorrow that enriches the new relations with China, Russia retains some caution regarding its dependence on Beijing Its approach to the yuan is more a result of negative Western pressure than a strategic choice.
“Now it is the only rational choice for Russia and Putin.”said Alexander Gabuev, Senior Partner at Carnegie Endowment for International Peace, to conclude that other circumstances may dictate different choices. “If reliance on the renminbi is the lifeblood that helps you be less vulnerable and less dependent on hostile currencies, then this is the way forward,” he considered.
The Russian example and the recent fragility revealed by the Swiss financial sector invite governments and elites, especially in China and Asia, to recognize the risks. To see their accounts frozen or even drained due to a financial crisis is a serious reflection that could soon change the world as we also know it in the field of finance.
The eventual move away from dollar dominance may end up proving to be a Pyrrhic victory for China.