China ‘dares to fight’ the U.S. reserve currency status

State of play: Beijing has long opted for a “hide and bide” approach to foreign affairs, reflecting a once-pragmatic approach to growth. But today’s China is different. Under the leadership of Xi Jinping, the country has taken a sharper stance against the U.S.-led world order, offering a glimpse at a future beyond American hegemony. Recent developments highlight this point—Xi’s state visits to Russia, the China-brokered peace deal between Iran and Saudi Arabia, and now deep coordination between BRICS countries.

What it means: This new order—an association between five major emerging national economies including Brazil, Russia, India, China, and South Africa—would put the interests of a unified ‘global south’ first, utilizing financial institutions that would upend a U.S. reserve currency status. Essentially, China is encouraging countries to take a bet against America, using the yuan and other currencies instead of the dollar. This could have many negative ramifications for America and the world.

What China’s doing: China is building an alternative to the SWIFT system. SWIFT is a U.S.-owned network banks and financial institutions use to conduct financial transactions across borders. It has allowed the U.S. to be an economic rule maker of the world for decades and to sanction adversaries like Russia and Iran. Last Tuesday, Chinese and French energy companies settled an energy trade in yuan for the first time in history. A day later, Brazil agreed to use China’s alternative system, which “ditch[es] the United States dollar as an intermediary.” Asia Financial reports...

“Internationalization of the Chinese currency had made “remarkable progress” in recent years, noting that while it only accounts for 7% of all foreign exchange trades globally, the yuan had “become the world’s fifth-largest payment currency, the third-largest currency in trade settlement and the fifth-largest reserve currency.”

Big picture: As the U.S. subsidizes a European land war in Ukraine, China expands its financial influence worldwide — and through Europe. Many have predicted the eventual fall of the dollar as the world reserve currency, and this process is only accelerating. Even so, the dollar is still one of, if not the most, stable currency in the world.