Prof. ST Hsieh
Director, US-China Energy Industry Forum
April 9, 2022
There is no doubt that “the dollar and euro remain dominant worldwide.” The US Dollar, used to be called by petro-dollar, has been the global dominated currency after the WWII. Here comes the global influences of the US, because US can unilaterally sanction any nation, any business, or any individual around the world. Euro is a strong second, But EU is not a single unified nation. Further the recent exit of Britain from EU weakened the Euro as British pond is a totally independent currency.
According to the International Monetary Fund, the U.S. dollar is the most popular. As of the fourth quarter of 2019, it makes up over 60% of all known central bank foreign exchange reserves. That makes it the de facto global currency, even though it doesn’t hold an official title. The strength of US dollars allows the US print and borrow money from himself.
America’s gross national debt topped $30 trillion for the first time on February 1, 2022, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it grapples with soaring prices and the prospect of higher interest rates.
The borrowing binge, which many economists viewed as necessary to help the United States recover from the pandemic, has left the nation with a debt burden so large that the government would need to spend an amount larger than America’s entire annual economy in order to pay it off. A comparison is the US national GDP is around US$ 21 Trillion.
The next closest reserve currency is the euro. It makes up 20% of known central bank foreign currency reserves. The chance of the euro becoming a world currency was damaged by the eurozone crisis. It revealed the difficulties of a monetary union that’s guided by separate political entities. GDP of the EU is around US$ 13 Trillion.
On the other hand, China’s GDP is around US$15 Trillion and growing. By the time China’s GDP exceeds that of the US, it will be a different world. As of now, because Russian’s GDP is only around US$1.5 Trillion, so the impact of Chinese Yuan replacing US dollars in Russia has very limited impacts on global economy. But we have to consider the following issues:
- The COVID-19 global pandemic is not over yet, the risk of a global recession is real. Every nation is exposed and economic recovery will not be even.
- The impact of the Russia-Ukraine war on the global economy is very negative already, but nobody knows where the “bottom” is or how long will it last.
- One thing is for sure, Chinese Yuan replacing the US dollars in Russia is caused by the severe economic sanctions, led by the US against Russia. Unfortunately, the bridge between Russia and USA/EU is burnt beyond recognition. The future, who knows!
China’s yuan is replacing the dollar and euro in Russian bank accounts amid Western sanctions, report says
Fri, April 8, 2022, 10:06 AM
- Russian banks say clients are opening more accounts in Chinese yuan instead of other currencies, Kommersant reported Friday.
- A March survey found that large Russian banks have seen a spike in funds being converted into yuan.
- One bank saw an eight-fold surge in the volume of funds on accounts in yuan, and another saw a four-fold jump.
Russian banks are reportedly seeing sharp increases in the Chinese yuan in their clients’ accounts as Western sanctions limit access to the dollar and euro.
According to a March survey conducted by Russian financial daily Kommersant, large banks have seen a spike in funds being converted from dollars and euros into yuan. New accounts are also being opened with yuan.
In Tinkoff Bank, the volume of account funds in yuan has gone up eight fold. MTS Bank saw a four-fold jump, and the Bank Saint Petersburg’s increased by 3.5 times.
“Under the conditions of restrictions, many companies see settlements in yuan as more stable and predictable,” MTS Bank told Kommersant. Another Russian bank noted that many companies involved in wholesale trade are switching to settlements in yuan.
The shift comes as Western countries continue to impose severe financial sanctions on Russia for its war on Ukraine, including limitations on foreign currency use. But since China has not participated in the wartime sanctions, access to the yuan remains open, making it a potential currency alternative.
Russian finance consultant Yugar Aliyev told the Kommersant that a sea change is underway. In the medium term, he said, the yuan “will not only replace the dollar in settlements with China, but also become a more reliable means of international settlements for Russian companies.”