OZY+GRI: Can Emperor Yuan dethrone King Dollar as the world’s currency?
GRI is pleased to present an exciting collaboration with innovative news provider OZY. We’re kicking things off with a series of five articles by Senior Analyst Jeffrey Moore, looking at Black Swan events. The fourth installment examines China’s chances of overturning the USD’s global dominance.
China’s meteoric rise over the past half-century is one of the most striking examples of the impact of opening up an economy to global markets that the world has ever seen. Over that period, the country has shifted from a largely agrarian society to an industrial powerhouse, lifting nearly a billion people out of poverty and reshaping the world’s economic landscape. In the process, it has seen sharp increases in productivity and wages that have allowed China to become the world’s second-largest economy.
But for President Xi Jinping, second place is not good enough to achieve the “Chinese Dream.” A key obstacle preventing the People’s Republic from reaching the summit of the economic mountain is King Dollar — the world’s dominant global currency. In 2018, China could seek to dethrone King Dollar by forcing yuan-denomination of specific commodities, marking a cataclysmic shift in the world financial order that’s been in place since World War II.
For example, if China switched from dollars to yuan to pay its oil sector suppliers, it would eliminate annual dollar demand in such contracts by $876 billion, leading to a historic depreciation of King Dollar.
As the world’s No. 1 oil importer, China may have the leverage to demand such a dollar-to-yuan switch, which would directly influence nearly 40 percent of global oil production and create a massive oversupply of U.S. dollars. And China changing to yuan-denominated oil contracts is significant because it could begin to unravel the U.S. dollar’s dominance worldwide and, in turn, lessen the United States’ ability to wield the soft power associated with currency leverage.
Read the full article on OZY here, and watch for the next in the series, out tomorrow.
