China is moving fast to try to remove the U.S. from the position as the main controller of the world reserve currency and trade, and gradually make the “yuan” in a preferred position that, added to the field of logistics in international trade that it intends to achieve in 2025 by China, will represent a definitive step towards China’s arrival at the top of world power.
The American currency is suffering a strain on its credibility, in the face of the huge emissions made in the face of the pandemic and in the current government to give political suspension to the government. Just in the last week of August the dollar fell 1,4% against the other major currencies.
At the time we write this article, the American debt crossed 100% of GDP, reaching
$28 trillion, which represents almost 141% of the country’s GDP.
With the approval of this new package, apart from the $1.1 trillion for infrastructure, we will still have to increase debt. Apart from the intention to “forgive” the students loan debt that amounts to more than $1.760 trillion.
It is worth taking a look at the US live debt clock https://www.usdebtclock.org/, to see how fast our debt increases.
The U.S. debt to foreign countries’ amount to about $7.1 trillion, which makes up the reserve of many countries. About 59.5% of the world’s reserves are in dollars, followed by the Euro, Yen, Pound and Yuan, currently only losing to “others” (see chart below).
At this time of corrosion in the credibility of the world, in particular of US’s allied countries, due to the catastrophe of Afghanistan, coincides with China strengthening its digital currency, which will have two important effects.
Internally, it will have full control of the expenses and availability of each citizen in the country, with the power to limit the use of anyone’s currency at any time
Internationally, this currency that had already been gaining momentum through the regional agreements in Asia, which made almost zero from the trade made with China ten years ago back in 2019 had already reached about 13.4% in goods and 23.8 % in services.
With the production of about 20% of the world’s economic production, it will be able to do so in order to impose a percentage of its currency, on purchases of its own products and imports, thus forcing the entry of the currency into the world exchanges in which China participates.
In a simple example, if the exporter of soybeans from Brazil wants to sell China will have to receive a share in yuan and in turn those who want to buy their products can be forced to pay also in the Chinese currency.
These facts would be unthinkable with the government and strong dollar that we had 2 years ago. Today and in the near future this does not happen and this avalanche of money should make the dollar’s strength go downhill.
Let alone the analysis of the American financial system that predicts high inflation with a small recession by the end of this year and beginning of 2022, which may even (hopefully not) cause a still-inflation.
Let’s see how much the U.S. government and lawmakers would expedite China’s arrival at the world top one powerhouse spot.
Carlo Barbieri