The United States dollar has long dominated the global economy regarding commerce, investment, and financial activities. Historically, it has served as the world’s reserve currency, with other nations keeping substantial amounts of dollars on hand as a form of safekeeping.
However, others have begun to wonder whether the dollar’s hegemony will last in light of recent changes in the global economy.
The growing usage of other currencies, like the Chinese yuan, in international trade is one of these changes. As China’s economic might increases, the yuan has been progressively increasing in importance.
China has made efforts in recent years to encourage the use of the yuan in international trade.
These efforts include establishing yuan-denominated trading centers and negotiating currency exchange agreements with other nations.
One notable example of this pattern is the LNG trade between CNOOC and TotalEnergies which was settled in yuan.
China’s first LNG transaction, including yuan settlement, was made through the Shanghai Petroleum and Natural Gas Exchange. China’s efforts to internationalize the yuan and lessen its reliance on the dollar represent a big victory.
Several causes motivate China’s efforts to encourage the use of the yuan in foreign trade. One is the desire to reduce its exposure to currency and associated dangers.
Due to the massive amount of debt China has in US dollars, any significant changes in the dollar’s value could significantly impact the country’s economy.
The ambition to expand China’s worldwide influence and counterbalance American dominance is another motivation.
Reducing the dollar’s prominence in global trade could be interpreted as a blow to US influence because the dollar has long been considered a representation of American power.
Notwithstanding these developments, it remains uncertain whether the dollar’s hegemony will expire.
The size and depth of the US economy and financial system and the dollar’s widespread acceptance and use continue to be its primary sources of support.
While other currencies, like the yuan, may become more significant, it will probably happen slowly and gradually rather than all at once.
The US has also taken action to protect the dominance of the dollar. For instance, it has exerted political and economic pressure on other nations to refrain from using alternative currencies and has taken measures to preserve its status as the world’s reserve currency.