De-dollarization accelerates as China's RMB soars past Euro, Yen; China builds new financial system

Worldwide adoption of China's currency, the renminbi (RMB), is gaining steam as the de-dollarization push takes hold across the non-G7 countries.

Two macro factors are accelerating the growth of the RMB in place of the US dollar as the preferred currency for trading and settlements. The economic sanctions against Russia, which froze and then seized billions of dollars of Russian USD reserves held in custody in Western banks, are forcing countries and companies to de-risk by moving their reserves from SWIFT-associated financial institutions. Another crucial factor is the high US interest rates, which are sucking in hundreds of billions of dollars from global accounts to feed huge and growing fiscal deficits.

High US government borrowing causes USD to be drained from the global system. Ironically, this causes USD to gain in value outside the US, while feeding inflation and reducing the dollar's strength inside the country.

Simply by moving its USD and Euro reserves from US and European banks to Chinese-based institutions, Chinese banks enjoy the best of all worlds: they receive billions of USD and Euro every day through trading surpluses, and can then lend those foreign currencies and create assets and economic activity on their own balance sheets. Analysis of Chinese banking and lending data confirm explosive growth in Chinese lending abroad, in both RMB and USD.

Resources and links:

Inside China Business, China isn't dumping dollars. They're dumping banks, and setting up a new financial system.

National Debt of the United States

SCMP, Global use of China’s yuan up sharply, beating pound and yen on internationalisation index

The renminbi overtakes the euro as a trade settlement currency as its use in global trade finance accelerates

Bloomberg, The Yuan Is Finally Showing Some Muscle in International Trade

Third time lucky? China’s push to internationalise the renminbi

Closing scene, Guilin, Guangxi province

[pikachusm]

Weaponising the petrodollar, the US shot themselves in one foot. Confiscating foreign holdings in USD, they shot the other.

[araara]

The world is heading towards a better future without the cruelty of US hegemony.

[sarahkhan]

With a massive 35 trillion debt everything in the u s is collapsing. Holding on to the dollar and bond is a death trap

[josephdewuhan]

So happy to see the rapid growth in the subscription of this deserving channel. Rare in depth and accurate and timely report of economy/trade/tech related issues on China. Thumbs up as always.

[donkeykong]

Using the USD doesn't have benefits strategically & tactical anymore. Reasons are 1] USD isn't backed & can be printed& harvested by US at will, 2)US can take your hard earning away in a New York second.

[frankacheampong]

Every time I see videos from people like Kevin and Prof Jeffrey Sachs, I find myself wondering how the US can have people who have such intelligence and understanding of economics and politics/diplomacy, and yet those people are not part of US policy making. Instead the administration gives the world people like Yellen and Raimundo who have presided over some of the worst economic times in recent make any sense.

[dbestplanner]

Every era sees the rise and fall of empires,

[iWantPeace]

Like homes are for living, instead of speculations, currency is for trade, not for speculations.

[JessGraham]

*If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you...prevent inflation*

[DragonYang]

It is very interesting that China works behind the scene on de-dollarization. They don't make fanfare to attract attentions. They just do what are good for them and their business partners. It is like a marathon competition. Chest pumping makes no good. Who reaches the finishing line matters.

[lengvid]

The changing of the guard is here. The new Champ is getting stronger with time--China!

[ching-yi]

Any student of macroeconomics learn Ricardo's Law of Comparative Advantage--that free trade benefits both countries. However, US politicians are upset about the US trade deficit and incorrectly hold the increasing trade deficit as some kind of losing economics goal post. In 2023, US trade deficit against China represented ~$280 billion. This is what US politicians erroneously think China is making from US consumers. Mathematically, this is wrong. Ricardo's law aside, the trade deficit only measures US consumer purchase of Chinese-made goods in the US, but what about the $400-500 billion per year that Chinese consumers buy of US goods and services in China? For example, Chinese consumers have been buying millions of US cars over the years, but Chinese companies can't even sell a single Chinese brand car to US consumers? The profits from Chinese purchases of US goods/services in China revert back to US companies. Furthermore, what can China do to narrow down US trade deficit? US manufacturing is more expensive than any other country in the world, and US politicians are actively preventing Chinese companies from either narrowing this gap or investing in the US: rejection of building Chinese manufacturing in US, rejection of sales of technology to China unless it's made of less than desirable quality, rejection of Chinese purchase of US companies, rejection of Chinese purchase of land, etc. Really, what is China supposed to do to narrow the gap given these scenarios? Trade deficit not withstanding, Chinese consumers have been and are buying plenty of US goods. Ricardo was right about trade benefiting both countries--US politicians are just not incorporating the other side of the equation.

[barnabusdoyle]

No one has done more to accelerate de-dollarization than Joe Biden. Let’s go Brandon.

[Aceks]

The RMB is used as a trade currency, countries around the world can use RMB to buy Chinese goods. The RMB has value because people can buy stuff with it.

[olderchin]

Expected, once China starts trading in RMB and their local companies starts to dominate its trade

[alinux]

Now Russia is trading 99.9% using rmb 😂

[georgejesson]

Janet Yellen : everything is fine
Gordon Chang : maybe this year China will finally collapse

[davidlazarus]

India was happy to pay for Russian oil in Rupees but there was insufficient supply of other goods to offset the inflow of rupees. For example there are plenty of goods that can be bought with
RMB when the Chinese buy oil in RMB. So India could pay in RMB, if they could sell other goods to pay. They could sell Russian oil in RMB to Europe, and that would solve the problem.

[gelinrefira]

The Chinese government will not likely allow the RMB to be freely floated and thus be speculated upon. There are Chinese Marxist economists like Hu Qiyuan even said monetary policy control shold be returned to the National People's Congress, not remain in the hands of central government bureaucracy, though he does advocate at the same time for more liberalization of the RMB to be utilized at higher rate in international trade. Controlling monetary supply and national capital is the key to socialist control over capitalists. It is what allows China to control their bourgeois class while reaping real economic growth in real assets like factories, technologies, agriculture, minerals, real estate, and of course the consumption of it.

They are not interested in financializing their economy like what the neoliberals did to the US from the 80s onward. They are building their own financial system to secure their own capital and to lubricate economic development and international trade in real stuff, not to engage in fake stuff like financial speculation and wall street casino practices. They don't actually want RMB to become the next reserve currency like the way the USD is. They are not interested in that because the reserve currency status require complete liberalization of your currency and allowing it to float freely while you have to print enough money to support the financial market. In the end, you will turn your economy from making real things into gambling other people's money in fake, virtual stuff. That is antithetical to socialism. This is moreso shown in that they are developing cutting edge fintech that lubricate economic activities, not developing new derivatives and other speculative financial instruments.

Their goals, philosophy and practice are fundamentally different from the neoliberal capitalist system in the US. It is something that western economists and financiers are supposedly scratching their heads over every time they "analyze" what China is doing. So either that they are truly are incapable of understanding it, or they are refusing to even acknowledge it by pretending to be confused over China's actions, and I'm inclined to believe the latter.

[oberstleutnant]

China has the divine blessing and will get better and better.