China and Russia have been planning to crush the American dollar as part of their economic war against the United States with the aim of bringing the curtain down on the latter’s global hegemony. The US dollar has been the most powerful currency in the world for the last over 80 years and it has been enjoying its monopoly without a challenge as the currency in which almost all international trade takes place.
This reserve currency status gives unprecedented power to the US over the world economy to the extent that it can even cripple a country’s economy within a fortnight. This is the focal point of the stance adopted by both Russia and China which have been working out strategies to overcome the dollar hegemony.
Russia, being the cornered one, especially on the pretext of being the one which attacked Ukraine, has compelled the European countries to buy the Russian oil in rouble so that those countries have to keep their money in the Russian central bank. It will be the key factor in supporting Russian economy despite the sanctions from the West, and will affect dollar by breaking the original Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
Russia also has leverage in this regard as it is the second largest producer of natural gas in the world and it can use this to force the countries to buy gas in their own currency rather than US dollar. China is also going hand in hand with Russia’s strategy as it has recently sealed off a deal with Saudi Arabia under which it will purchase oil from them in yuan.
China can also use the loan factor to its advantage. There are 165 countries that owe $385 billion to China, which may now devise a plan to offer, say, one per cent discount to these countries if they pay back the loans in yuan, and not in dollar terms. This will be a huge relief for all those 165 countries.
Moreover, for the big guns, like the United Kingdom, Singapore and many more, China has used the Bilateral Currency Swap Agreement under which China and these countries will make deals using their own currencies rather than the US dollar.
But all of these strategies may not work to eliminate dollar as the major inter- national trade currency as both China and Russia have an image problem across the world for various reasons. China is being accused of Taiwan invasion and its dead trap diplomacy, while Russia has been cut off from the West after being forced to initiate military intervention in Ukraine as it felt threatened by possible Nato expansion and support from the West, especially the US.
Likewise, it has been seen that China is manipulating its yuan frequently which makes it not a trustworthy currency. This is where the US dollar takes advantage as countries use it because of the trust factor in trade.
Therefore, China and Russia may well weaken the US dollar, but to leave it completely crushed is just another ball game altogether. It is vital for them to make their currencies more trust-worthy so that countries may feel confident enough to conduct trade in yuan or rouble.
MUHAMMAD SAAD MOHSIN