The American Dollar is by far the most powerful currency in the world. China is willing to challenge this dominance with the Yuan, starting with the Russian market.
China’s partnership with Russia includes one aspect that aims at directly undermining American influence over the global economy: the Dollar. In March 2023, Bloomberg reports, the Chinese currency (the Yuan) was the most traded within Russia, passing the Dollar for the first time.
In fact, China’s attempt to establish the Yuan as a true rival to the Dollar does not stop to the Russian market. According to American intelligence, China and Saudi Arabia are in talks to trade Saudi oil using the Yuan.
One of the reasons why the United States is the global hegemon is the Dollar’s influence. The Dollar is a “lingua franca” in international trade: everybody uses it just like everybody uses English as a universal language. The Dollar is simply too reliable: an Indian investor wishing to open a facility in Mexico is going to do it in dollars, not in Mexican Pesos.
On the other hand, the United States uses mainly the local currency whenever trading with a foreign nation. This is because a major international crisis could easily depreciate the Dollar (being the world’s most used currency) and the United States wants to maintain their assets safe.
This way, if the Dollar ever depreciates, the United States maintains the value of their foreign assets (being in foreign currencies) while everyone relies on the US wellbeing for their investments. If a crisis were to hit the United States (for example a banking crisis), the global economy would suffer more than the US in the long term.
This concept applies to Chinese investments too. The majority of Chinese investments are in Dollars, therefore relying on Washington for the wellbeing of their investments.
But China wants to challenge the United States as a global hegemon. Beijing understands that military dominance is, for now, out of the question. Therefore, China wants to use a subtler way to start scratching off American power. They are starting a currency war.
A new balance
And what better way to start a currency war than imposing the Yuan on their new vassal? With the war in Ukraine, Russia’s reliance on China has increased ten fold. Russia needs to sell its oil and gas, and China is the only market currently available (India too but it’s too far to make a difference now).
Chinese president Xi Jinping visited Moscow last month, signaling further partnership with Russia. According to American intelligence, China might be getting involved on the ground in Ukraine with military support.
Russia’s shift from using the Dollar to using the Yuan is a major sign of the new world balance started with the invasion of Ukraine. It is also a sign that Russia no longer has a significant relevance on the world stage, if it ever did after the fall of the Soviet Union.
