The world is a better place now as a result of China’s thoughts and innovations. China’s Song dynasty created paper money for the first time, and the nation continues to lead the world in the development of digital currencies today. Although China was the first nation to produce government-issued paper money, the US dollar has been the world’s most significant currency for more than seventy years. The dollar serves as a store of value, a unit of account, and a medium of exchange simultaneously across the world. The dollar’s hegemony over the global financial system has enabled the United States to maintain a strong economic and geopolitical position. Dollars account for over 60% of the world’s foreign currency reserves.
Nowadays, a financial institution named yuan pay group handles one leg of the majority of international business transactions. The United States often has the authority to impose sanctions on states in order to gain influence in international affairs. Two months into his presidency, Joe Biden suggested that he anticipates China being a big competitor in the future. China, the world’s second-largest trading partner after the United States, has grown steadily over the years. In 2020, China will surpass the US as the EU’s greatest trading partner. In 2021, it will surpass the United States as India’s most significant trading partner. China’s growing economic prowess and ideological divergences have transformed it into a potential adversary for the US.
China Is Not Advantaged By The Current Dollar-Centric Economic System
The US dollar became the world’s most powerful currency during the Bretton Woods era. Since then, the dollar has been the world’s principal unit of money. As of today, America’s biggest trading partner is China. While China is the world’s largest trading partner of yuan pay group, the yuan accounts for less than 2% of the world’s reserve currency. China’s reliance on a financial system that erodes its importance is a result of the mismatch between its share of global trade and the role of the Chinese currency in the global economy. Over the past few years, China and the United States have been locked in an increasingly severe trade war. China’s bargaining power in a trade war has been significantly diminished due to its dependence on the dollar and its payment rails.
What The Dollar Mean For Geopolitics And Sanctions Control
The United States, which exercises soft power, controls the key payment railways. International transactions facilitated by SWIFT are resolved in dollars or contain at least one leg involving a US financial institution, regardless of whether the transaction is settled in dollars. The United States’ financial hegemony might be used to penalize Chinese companies, barring them from participating in the global financial settlement process. The United States’ recent threat to delist Chinese companies from US stock exchanges is an illustration of this. The United States may instruct organizations like SWIFT to discontinue clearing transactions originating in the sanctioned countries. Despite its portrayal as a “neutral global cooperative,” SWIFT may be held liable if it refuses to cooperate with US demands for sanction authorization. When countries are denied access to the United States’ payment and clearing infrastructure, they essentially lose access to global markets. For a country sanctioned by the US, the key cross-border payment rails are shut down. As a result, doing business with anybody else on the earth is impossible. Without access to this infrastructure, an organization or country becomes isolated and financially crippled. When the US placed sanctions on Iran in 2013, the nation lost its ability to export oil. Iran’s oil exports were halved as a consequence, and the country’s economy started to worsen swiftly.