China might take this opportunity to give a blow to the US dollar. As recession in the west seems inevitable, Beijing will take advantage.
China has started the engine again. On Tuesday, newly released economic data showed Chinese GDP growth for the first quarter of 2023, exceeding expectations. China’s economy grew by 4.5%, half a percentage point higher than forecasted.
This growth is proof of a rebound from the Covid-19 pandemic, a year after the rest of the world already experienced it. In fact, the Chinese government expects to grow the overall economy by 5% this year, an unusually high number for developed nations.
Until last year, China’s economy was blocked by strict Covid sanctions which were shrinking imports and exports alike. Further, it was creating a societal problem in China, as citizens were tired of strict restrictions while the rest of the world had moved on.
Nevertheless, this might have been incredibly good timing for China, as it might experience a Covid rebound as everyone else falls into recession.
On the other hand, China’s growth might also help reduce the impact of the recession. It is, after all, the second largest economy in the world and a very important piece of the global economic puzzle.
Though, China might decide to take advantage from the global recession accelerating their attempts at making the yuan a global reserve currency.
The currency war and the fall of the dollar
The dollar has been the undiscussed global reserve currency for almost 80 years, since the end of World War II. However, uncontrolled national debt, high inflation and international pressure are starting to put a toll on the greenback.
According to Venture Capitalist, the dollar’s purchasing power has decreased by 98% since 1971, and China can be blamed as part of the reason. Indeed, 11% of the American debt is held by China, the second largest share after Japan.
Furthermore, China is now starting to put increasingly more pressure on the dollar. With the war in Ukraine, China essentially “vassalized” Russia and replaced Russian dollar trades with the yuan.
As Saudi Arabia strives further away from the United States, China is willing to take its place by trading oil in yuan. So far, this is the first time another currency seriously threatened to change the way oil is traded globally.
And now, as the American Federal Reserve tightens the monetary supply in order to rebound the purchasing power, the US will inevitably fall into recession.
China will be in the position to take the spoils of the fallen, as its GDP keeps rising.
Of course, the yuan is still far away from actually catching up with the dollar. Nevertheless, it is not an impossible scenario anymore.
