China is doubling down on its attempt to challenge the dollar’s dominance in global trade through mechanisms that analysts believe will not be effective or achieve any success, according to the website.Business Insider“.
China, along with countries that are part of the “BRICS” alliance, which includes Brazil, Russia, India and South Africa, plans to develop a new international currency in order to compete with the dollar as a reliable reserve.
China also says that it is working with Hong Kong, Singapore and three other countries in order to convert its official currency (the yuan) to be the main global reserve currency during the coming period.
The site says that Beijing hopes that these moves will be able to threaten the dollar’s position as a global reserve currency, by moving to buy oil in yuan.
In 2016, the International Monetary Fund announced the inclusion of the Chinese yuan in the basket of approved currencies, along with the dollar, the euro, the yen and the pound sterling.
However, experts confirm that the dollar has witnessed such challenges before, but it succeeded in overcoming them and continuing as a preferred option around the world.
And the site quotes economist Chris Turner that “China had hoped that the World Bank’s move would be a breakthrough for the yuan in the world, but the demand for its use as a global reserve currency has been disappointing over the past years.”
According to the International Monetary Fund, only regarding 25 percent of shifts away from the dollar went to the Chinese currency over the past period. Instead, central banks have focused on holding non-traditional reserve currencies such as the Australian dollar, the Swedish krona and the South Korean won.
The site indicates that the proportion of the yuan in global monetary reserves is still very small and represents only 2.9 percent.
The yuan is also pegged to the dollar through a reference rate to make China’s exports more competitive, meaning that Chinese moves are unlikely to threaten the dollar’s standing as a global reserve.
The site notes that although investors may be wary of moves to curb the dollar’s dominance, all indications are that the US currency will not lose ground anytime soon.
“We hear this story all the time…there is no threat in the foreseeable future to the dominance of the US dollar, because it is the currency of the world’s largest economy and is used in the largest international capital markets,” Jeff Haley, chief expert at economic analysts OANDA, told Business Insider.
“This does not apply to any of the BRICS currencies,” Haley adds, adding: “I prefer to be paid in US dollars rather than the (Chinese) yuan, the (Brazilian) real, the (Russian) ruble, the (Indian) rupee or the (South) rand. African)”.