China’s long-term plan is to de-dollarize its international exchanges; a measure that combined with the above move, would mean a sharp drop in demand for the dollar. China has nearly 4 thousand billion dollars in trade with the world and more than 400 billion dollars in trade with the United States. This huge volume of China’s share of world trade shows that its decision to gradually de-dollarize its domestic and international economies could severely weaken the dollar’s position in world trade and economy. Trump’s aggressive approach and his initiative in launching trade wars with various countries have led other countries to embrace China’s approach and move toward bilateral or multilateral monetary unions or the de-dollarization of their international trade. Although this trend and this aggressive move by China does not mean an acceleration in the de-dollarization of world trade; nevertheless, the monopoly position of the dollar as the main currency and the medium of default global exchange is severely challenged.
In addition, China’s foreign exchange policy is a conditional policy, as in the history of its foreign exchange policies, nailing the yuan to the dollar, shows the depreciation and appreciation of the yuan against the dollar. In 2015, for example, the People’s Bank of China devaluated the yuan against the dollar to boost its exports to the United States. Over the course of a decade, the yuan has remained stable and at a steady pace, boosting investor confidence in its stability. This history and experience shows that China, in addition to its long-term vision, focuses on the timing of its trade and exchange rate policies, and may change its policy approach after achieving this goal, but its long-term trade and currency policy approach, is overtaking the US economy and becoming the world’s dominant economy based on the vision of “Made in China 2025”.
From this perspective, China’s de-dollarization efforts should be seen as complementary to other long-term projects, including the Silk Road project, which, in a coherent direction, will increase the demand of member and destination countries for the yuan and make the yuan the dominant currency within the realm of this project. The fact that China’s set of trade and currency approaches is creating a new blockade in the world, even if it responds positively, would not be similar to the situation in the Cold War between the former Soviet Union and the United States. In fact, the atmosphere of competition between China and the United States could move toward currency cartel competition; currency cartels in North America, led by the United States, the European Union, led by Germany and France, and Central Asia, plus Russia, as well as most African and some Latin American countries, led by China, as the countries which are mostly on the front of strengthening the yuan, due to China’s commodity financing model.
But another important factor to consider in this arena is the emerging cryptocurrencies that have different conditions from the conventional currencies. Although China is pursuing the development of e-RMB digital currency, it is still less competitive than cryptocurrencies such as Bitcoin, and the support of celebrities such as Elon Musk has further strengthened the position of such currencies. Nevertheless, China’s position in world trade allows China to have highly competitive digital currencies.