Assesment Chinese Yuan Is The New Dollar

• December 01, 2022
• Franchise, Consultancy,
• Administrator

Chinese Yuan is the New Dollar

Rely on your own resources

(Mao ze Tung)

 The United States Dollar is slowly being replaced by the Chinese yuan. Financial and business academies have analyzed that by the next ten (2030) years Chinese currency would likely to lead the world’s fiscal records and will depose the American dollar.

With advent of Bretton woods system, American Dollar has achieved highest peaks of both twentieth and twenty-first century.  This system included an efficient foreign exchange system and all currencies were hold down to U.S dollar. In addition, in the post Bretton wood years, dollar emerged as a very dominant currency in the mid-20^th century with its fixed values by advancing the Nixon shock in 1970s and the Triffin’s dilemma in late 1980s. These events dethroned all the regional currencies around and all the world’s currencies got a peripheral position to U.S dollar which resulted in the centralization of it and America became the largest partner in the global trade.

With the introduction of significant economic reforms by Deng Xiaoping in 1978, China started to transform into a superpower. China's GDP increased by 10% on average over the three decades between 1980 and 2010, helping to bring half of its 1.3 billion people out of poverty. Between 2003 and 2013, the Chinese economy expanded five times in dollar terms, and at $9.2 trillion, it was clearly the second-largest economy in the world.[1] Therefore, having advancements in the economically globalized world by the end of 20^th century, China started to enlarge and expand its trade ties initially with neighbors and latterly with the major continent of the world. Especially with birth of Belt and Road Initiative (BRI), the regional connectivity among countries enhanced and with this China started influencing its economic ties with the neighbor and other countries of the world.

In the recent era, China has become world’s largest trade companion: The Belt and Road Initiative initially through Shanghai Corporation Organization (SCO) connected China with 60 countries. SCO aimed to bulk up the foreign exchange in local currencies to put down the Western sanctions and both the major co-founders of the organization agreed on a road map to bulk up local exchanges gradually and reduce their dependence on U.S dollar[2]. Whereas the China Pakistan Economic Corridor (CPEC) became a bridge for China to enhance its economic power through interacting financially with Europe, Africa and Asia. CPEC has now aggravated the economic cooperation among states with its hundreds of projects specifically energy projects with Pakistan, Middle Eastern Countries and Russia. CPEC advanced in a very exceeding manner that it appeared as a great challenge for America and its soft power.

Once David Ricardo said;

“The Farmer and the Manufacturer can no more live without profit and the labors with wages”

Correspondingly, In the beginning, every country invested in CPEC but the exchange rates were in the dollars because of dollar being a major foreign exchange currency. Dollar being the centered trade exchange even does not make more than 2 percent of the global reserved currencies, which was quite a heavy milestone for other countries to reach the level of the USD in Foreign exchange (FOREX) markets. Same as today China’s share in global trade is larger than United States and being the major shareholder of the global trade, its currency was undermined because of the exposed value of dollar that is why the dollar could not make a better hold for china in world’s trade relations.[3] Anyhow in 2018 China asked countries to start exchange in Chinese currency and every country warmly welcomed the new deal. Pakistan appreciated the agreement and allowed yuan-based bilateral trade with China which aggrandize the economic and fiscal partnership between both countries.[4] This was the first step China took to manage its currency level. Reports suggest that China’s economic policy is apparently trying to enhance its export values and for this it has acute the trade and investments in Chinese yuan.[5]

Now-a-days, in the economically globalized world, the international system is entirely equipped with the economic politics that every state is concentrating and paying heed to their economic strategies to upheld their nation from economically down trodden world and to make their country regionally strong. Belt and Road Initiative through SCO and CPEC connecting the Asian, African, European and Middle-Eastern Countries to enhance their regional connectivity through variety of projects: at the core of this China has increased and intensified its forging alliances with specifically the European and African states which are major partners of the United States which will assist Beijing to revalue the Chinese yuan not only to make it regionally strengthen currency but also to internationalize it in the international system which will help out China and its allies to work independently without having economic and financial sanction onto themselves.

As mentioned earlier, there is a single exchange forum in international market which consider the whole world as a unitary body which troublesome the underdeveloped and developing world to strong their coins, countries like Iran which has huge economic sanctions, Russia which is detreating economically after Russia-Ukraine war, Pakistan which is equipped with huge debts and Eastern African states which are in dark depths of poverty have entirely collapsed financially after America’s emerged Capitalist system and liberal order in the aftermath of Cold War, CPEC in the amid of these critical situations came up with highly appreciating deals to assist the countries with under-develop fiscal systems to uplift their country from still dark economic ages. Therefore, in current years these countries have deep rooted their ties on Chinese economic investments to boost their economies and to vanish out this single market exchange system which is treating the whole deprived world as an economic slave.

 Since the last decade Chinese yuan has had a dominant effect on U.S dollar. Even in 2015, the international monetary System Approved the fiscal exchanges in Chinese yuan which labeled it as one of the major strong currencies of the world as the current exchange rates of Yuan with regard to Dollars are 1 yuan equals to 0.14$. this shows how swiftly the Chinese currency has arisen to higher values in international fiscal systems.[6] Moreover, the blatant steps and precautionay measure taken by China is its Cross-Border Interbank Payments System (CIPS) which is built in  countries including France, United Kingdom, South Korea, North Korea, America, Japan and Russia. China has further established the digital yuan projects which will result in a heavy cost for united states dollar and it will prove to be a great hurt to American economic hegemony in the world.[7]

Hence Chinese Currency (Yuan) is cautiously emerging as a threat for United States Dollar and for the international financial system quietly based on USDs. Over the last decade Beijing has vividly managed to expand its financial relationships and has become the world’s largest trade partner and facilitator. Well today Beijing has cautiously and carefully invested disorganizing the U.S oriented economic system in technologies, infrastructures, foreign aids Because Beijing is not only a single state which wants to detour the united states dollar but the major part of the world wants the same. Furthermore, the United States Sanction authority on economic developments through Society for Worldwide Interbank Financial Telecommunication would like to be drawn out by the rapid advancement of Chinese currency based fiscal system in the global exchange markets which will likely make the Chinese Yuan a new Dollar globally.

 

References

 Bansal Rajesh and Singh Somya, (2021): China’s Digital Yuan: an alternative to the Dollar-dominated Financial System: Carnegie Endowment for international peace.

 

Pakistan’s state bank Allow yuan-based trade

 https://economictimes.indiatimes.com/news/international/business/pakistan-central-bank-allows-yuan-based-trade-with-china/articleshow/62350266.cms?from=mdr

 

why China’s Currency tangos with USD: Investopedia, accessed on 12/1/2022

 https://www.investopedia.com/articles/forex/09/chinas-peg-to-the-dollar.asp

 

 Picardo Elvis, (05/08/2019),: why China’s currency Tangos with the USD: Investopedia.com, accessed on, 01/12/2022.

https://www.investopedia.com/articles/forex/09/chinas-peg-to-the-dollar.asp

 

Zoe liu  Zongyuan,  (21/09/2022): china is quietly trying to dethrone the Dollar: The financial Times.

https://foreignpolicy.com/2022/09/21/china-yuan-us-dollar-sco-currency/

 

Meng Xianming, etl, : the Impact of an Appreciation of The Chinese Yuan on the Global trade.

 

 Weiss Colin, (10/2022),: Geopolitics and the U.S. Dollar’s future as a reserve Currency: International Financial Discussion paper: Board of Governance of Federal Reserve System.

Is the Chinese Currency the renminbi, dangerously undervalued and a threst to the global economy: A symposium of views.