China is steadily establishing itself as a significant participant in the recently-named Global South, which was formerly known as the Non-Aligned Motion. Over the last few years, China has become the country’s biggest bank of developing countries. Many people are concerned about using the debt trap to subdue partners and create a “hegemonic sphere of influence” as a result.
China’s financial standing is such that it is now viewed as the biggest risk to the US dollar. It is an important part of the BRICS party ( which also includes Brazil, Russia, India and South Africa ). This team is attempting to create a unipolar world that challenges the West’s identity, particularly the United States ‘ management.
Without using the name” threat”, the US leadership now sees China as the “most major long-term concern” to the global order. Given that China’s corporate goal is to stop the dominance of the US dollar, the foundation of US hegemony, it is simple to understand why.
I am studying the role China is playing in the de-dollarization of the world as a scientist in global political economy at the Université Laval.
Money stronghold
The power of the US dollar supports American identity in the current international order, as French scholar Denis Durand explains in his content” Guerre monétaire militaire: l’hégémonie du money contestée”? ( International forex war: the economy’s identity challenged? ).
American currency is used in many Third World and Eastern European nations, where it enjoys a much higher level of public trust than local currencies, in addition to the point that some currencies are linked to the money by a fixed connection or group of variation. The only nation in the world that is levy foreign bill in its own currency is the United States.
The US dollar’s overrepresentation in the country’s central bankers ‘ foreign exchange reserves reflects its hegemony over the world market. Even though this has weakened, the dollar continues to outperform another assets.
The promote of the US dollar in the standard property of the country’s central banks is still roughly steady at around 58-59 % despite a 12 percent point decline between 1999 and 2021.
The US dollar continues to inspire a lot of confidence around the world, strengthening its position as the world’s dominant reserve currency. On the US investment industry, the country’s central bankers ‘ US dollars resources are invested in US Treasury bills, which lower the cost of financing both government loan and personal expenditure in the country.
However, the US economy may lose money if the identity of the dollar did. When Durand asserts that” the economic hegemony of the United States is held up only by the assurance of financial agents around the world in the American money,” he makes this point.
There are two possible causes of a decline in the nation’s confidence in the US dollars.
First of all, as US Treasury Secretary Janet Yellen stated in an interview in April 2023, the US is firmly using its dollars as a tool to manipulate both its own enemies and some rebellious allies. This was eventually destroy the dollar’s hegemony.
On the other hand, the US loan situation, especially its unsustainability, is a source of concern that could change the economy’s attractiveness as a global reserve currency.
Unsustainable bill
Since 1944, and even more so since the Bretton Woods Agreement‘s enactment in 1959, the US dollars has been at the center of the global financial system.
The Bretton Woods system was based on both the metal and the franc, which was the only money that could be converted into gold. This conversionibility was set at a rate of US$ 35 per gram.
That changed on August 15, 1971, when Richard Nixon announced the close of the economy’s conversionibility into gold as a result of inflation and the growing disparities in the United States ‘ global economic ties.
The ability of the United States to accept debt to meet people expenditures was constrained by the dollar’s gold price. The United States could only lend in accordance with the volume of dollars in liquidity and its gold reserves under the gold-based system, where silver was the surety of the US dollar.
The US had free rein over its debt after abandoning the gold-based system. In 2023, the US public debt reached more than$ 33.4 trillion, nine times the country’s debt in 1990.
This astronomical figure continues to raise concerns about its long-term sustainability. As US Federal Reserve Chairman Jerome Powell has pointed out US debt is growing faster than the economy,  , making it unsustainable , in the long term.
Opportunity for China
China is obviously aware of this reality because it recently sold off all of its US debt. Between 2016 and 2023, China sold$ 600 billion worth of US bonds.
However, in August 2017 China was the United States ‘ largest creditor, ahead of Japan. It held more than$ 1.146 billion in US Treasuries, almost 20 % of the amount held by all foreign governments. Beijing is now the second-largest foreign holder of US debt, with a claim of around$ 816 billion.
It is undoubtedly no coincidence that Beijing first instituted its own gold pricing system in the yuan before delving into US bonds. In fact, on April 19, 2016, the Shanghai Gold Exchange, China’s operator for precious metals, unveiled on its website its first “fixed” daily benchmark for gold at 256.92 yuan per gram.
China’s plan to make gold a tangible guarantee of its currency includes this policy.
Gold for dollars
China is also selling its US bonds. According to the US Treasury, between March 2023 and March 2024, China sold off$ 100 billion in US Treasuries, on top of the$ 300 billion it had already sold off over the past decade.
The Middle Kingdom is now the top producer and consumer of gold, which has replaced roughly a quarter of the US Treasuries sold in ten years. Other central banks in emerging markets continue to buy gold, just like China’s central bank.
China’s appetite for gold was confirmed in 2010, when its gold reserves rose to 1, 054 tonnes, from around 600 tonnes in 2005. Ten years later, in 2020, its stock of gold had almost doubled again to nearly 2, 000 tonnes. By the end of 2023, with a gold reserve of 2, 235 tonnes, China will be the country with the sixth-largest gold reserve.
Gold allows China to store the profits from its enormous trade surpluses in its place of the dollar. Beijing is attempting to increase its currency’s use abroad with the help of the Shanghai Gold Exchange, which provides contracts for gold trading contracts in yuan. This will help establish the yuan as the world economy’s benchmark currency.
Zakaria Sorgho is senior fellow at FERDI &, ACET-Africa and research associate at CREATE, Université Laval
This article was republished from The Conversation under a Creative Commons license. Read the original article.