this post was submitted on 11 Jul 2023
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United States | News & Politics
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Yeah, not many are actually dedollarizing. The big ones are China, Russia, Brazil, Argentina, S. Africa, and Iran, and there are a few others. But most of these already don't do a ton of trade with the US because they're not on good terms politically and economically.
The common thread here is that most of these countries have one or more of the following:
In other words, they're not turning to the yuan because they think it's better than the dollar, but because they're desperate, and I'm guessing they have deals with China that are likely more beneficial to China than the countries themselves (i.e. China may be helping bail them out in exchange for some leverage).
So I'm not too worried about the yuan or another currency supplanting the dollar in a real, meaningful sense. That said, I do think it's concerning that the US has such a large amount of deficit spending. However, I trust the US dollar more than the yuan.
BRICS has already surpassed G7 in terms of GDP when adjusted for PPP, and that's the main force behind dedollarization. What is likely to happen is that there will be two parallel economies for global trade. One will be based on the US dollar and another on the BRICS currency.
What that means for US is that dollar based trade is shrinking, and along with it the demand for dollar. So, when US does a bunch of QE, there won't be the same level of demand for the dollar as there war previously.
Meanwhile, the yuan in particular is valuable to countries for the simple reason that China is the biggest trading partner for majority of the countries now. Countries can always convert yuan into something tangible they need from China. The dollar has no inherent value behind it.
Which currency might that be though? Don't get me wrong, I'd love to see a world where we don't have to pitch in to US spending by solely using dollars for trade, but I don't see any BRICS currencies being able to rise in the next 30 years to be even in the same league as the dollar.
The plan is to have a currency that's backed by a basket of commodities that BRICS countries produce. Given that BRICS countries are where most of commodities and manufacturing is located, I definitely see a rapid rise for such a currency. Especially coupled with projects like BRI that China is aggressively pushing. China will be building infrastructure in developing countries on a massive scale, and all the trade that will result from that will most likely be done in the BRICS currency.