Currency War

The Chinese government made a move on January 16 of this year that one financial expert foresees as the beginning of the end of the American dollar as a world currency. 

Hoping to use a “digital” yuan to oust the U.S., China began a new venture with SWIFT to create the Finance Gateway Information Services Co. (FGIS).  SWIFT will hold a 55% stake of the partnership with the remaining 45% co-owned by Chinese companies under the watchful eye of China’s central bank.

For those unfamiliar with international banking, SWIFT, i.e. the Society for Worldwide Interbank Financial Telecommunication, is a cooperative founded in Brussels in 1973, with over 200 banking institutions in five different countries that provide messaging network to securely send and receive information, such as money transfers around the world.  In 2019, more than 11,000 SWIFT member institutions sent approximately 33.6 million transactions per day through the network, the overwhelming majority of which was conducted in U.S. dollars.

According to the IMF more than 61% of all foreign bank reserves are currently denominated in U.S. dollars. However, things are changing.  Even before COVID and the take-over of our government by the left-wing Democratic Party, economists were already predicting that China would overtake the U.S. as the world’s number one economy by 2024. 

Both China and Russia have been working behind the scenes to make agreements with other countries to move away from the dollar in international trade over the past few years. India now plans on purchasing oil from Iran with gold.  Saudi Arabia and China joined forces to construct a massive new oil refinery in Saudi Arabia and will more than likely abandon the Petrodollar which has been a key player in the U.S. economy since the Nixon Administration.  China, now one of Africa’s largest trading partners, is using the yuan in cross-border transactions.  And let’s not forget the U.N. which has been issuing reports that openly call for an alternative to the U.S. dollar as reserve currency for quite a few years.

Through FGIS, China hopes to cement the yuan as the world’s favored digital currency which according to David Goldman, in an article at the Frontier, could very well happen. Replacing the dollar as world funding currency could restrict the US’s ability to borrow money in international debt markets to finance our out-of-control deficit expenditures and hamper or prevent the US from sanctioning hostile countries.

The digital yuan, officially called the Digital Currency Electronic Payment, marks the first time any major economy has made a concerted attempt at a digital currency. It has, according to Goldman, the “potential advantages of block chain technology,” which will enable the tracking of goods at every point of its path, from factory to storage to port to cargo vessel, etc.

It also allows for just-in-time deliveries and just-in-time payments. This means lower transaction costs and greater transaction security. For these reasons, Goldman predicts that the digital yuan “well might rewrite the rules of international banking,” as well as break the US dollar monopoly on the international stage.

As of 2020 the U.S. federal government was over $23.5 trillion in debt, or about $71,000 for every man, women and child living within its borders. To remain solvent and ultimately pay what it owes, the Treasury must sell notes and bonds to investors to raise money to finance the debt. 

What would happen if the US loses its world currency status?  That is open to speculation that includes the total collapse of the US economy to the collapse of the US dollar and everywhere in between.  Let’s hope we never have to find out.

Historians still quibble about what event marked the end of the Roman Empire. Some future historians might choose Jan. 16, 2021, as the fatal moment for the American empire.”  David Goldman

Sources:  China wants to weaponize its currency. A digital version could help, Analysis by Laura He, CNN Business;  China and SWIFT Partner to Take Digital Currency Global by Joyce Huang,  VOA News on China; The future of the USD as a reserve currency, Forex Live

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *