Chinese Yuan, Threat Or Opportunity For The World?

20 Nov 2023

It is a fact that the history of humanity is marked by the rise and fall of great civilizations that have left, in one way or another, their mark on culture, science, politics and the economy. They all had their own vision of the world, values, interests, and of course, their own currencies that reflected their power and influence on the international stage.

Today, we are witnessing a historic change in the world order, manifested in the rise of China as a global power and the advancement of its currency, the yuan, as the second most used in international trade. This phenomenon raises a series of questions that invite us to reflect on the meaning and consequences of this change, both for the Asian giant and for the rest of the world. According to the SWIFT report, the yuan accounted for 9.43% of global exchanges in October 2023, while the euro fell to 6.74%. The US dollar, for its part, remains the dominant currency with 79.23%, although its share has decreased slightly.

SWIFT: Financial messaging platform that facilitates secure communication for the exchange of standardized financial messages. It allows international transactions to be carried out quickly, reliably and at a low cost, using a code that identifies each participating entity. It is also used by other companies and institutions, such as exchanges, clearing houses, depositories, corporate businesses, etc. Although it is a key infrastructure for the international financial system, it also has geopolitical implications, since it is used by some countries, such as the United States, to impose sanctions and exclude other countries from access to the system, for example: Russia or Iran.

Objectively, the rise of the yuan reflects China's growing weight in the world economy, as well as its efforts to internationalize its currency and reduce its dependence on the dollar. China is the largest trading partner of more than 120 countries and regions, and has signed currency swap agreements with more than 40 central banks. But the rise of this currency also has geopolitical implications, as it reinforces China's role as a global power that challenges the leadership of the United States. Some experts believe the yuan could become an alternative to the dollar as a global reserve currency, giving China more influence in international affairs and allowing it to bypass US sanctions.

However, the yuan still has to overcome several obstacles to achieve that status, such as the liberalization of its capital account, the opening of its financial sector, the transparency of its monetary policy and the stability of its exchange rate. In addition, it faces competition from other emerging currencies, such as the Russian ruble, the Brazilian real or the Indian rupee.

βœ” Probable benefits of the Chinese Yuan for the world economy: Facilitate international trade between China and its partners, by reducing transaction costs, exchange risks and dependence on the dollar. Stimulate global demand for Chinese products by making them more competitive and accessible to foreign consumers. Increased diversification and stability of the international financial system, by offering an alternative to the dollar as a reserve and investment currency. Promoting the economic and social development of emerging and developing countries, by facilitating their access to the Chinese market and credit, as well as to cooperation and financial assistance from China.

❌ Probable negative effects of the Chinese Yuan for the world economy: Generate inflationary pressures in China and the countries that trade with it, by increasing demand and prices for raw materials and imported goods. Trigger geopolitical tensions and conflicts between China and the United States, by questioning the leadership and influence of the latter in the global economic and political order. Cause trade and financial imbalances between China and its partners, by favoring the Chinese surplus and the deficit of other countries, as well as the accumulation of reserves by China.

Trade surplus: It is the positive difference between what a country sells abroad (exports) and what that same country buys from other countries (imports). That is, a trade surplus occurs when exports exceed imports in terms of monetary value. This means that the country is generating more income than it is spending abroad.

Analyzing the phenomenon of the Chinese yuan from a critical and objective perspective is very difficult without falling into the prejudices, distortions or manipulations to which we are exposed in the Western media, which tend to characterize and see China's advances as a threat, and not as an opportunity, for the world. The Chinese yuan can have a significant impact on the global economy, both positive and negative, depending on the circumstances and policies adopted. In the end, whether we like it or not, it is a reality that must be taken into account and that poses new challenges and opportunities for global development.


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Author's Note: The opinion expressed here is not investment advice, is provided for informational purposes only, and reflects the opinion of the author only. I do not promote, endorse or recommend any particular investment. Investments may not be right for everyone. Every investment in the market and every trade you make involves risk, so you should always do your own research before making any decision. I do not recommend investing money that you cannot afford to chair, as you could lose the entire amount invested.

πŸ’– Originally Posted: Publish0x

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May be threat to USD only currently because countries started ditching USD in international trade agreement and payments flying in Yuon.
Thanks for the article, very interesting!
A mild threat till, crypto goes mainstream