China turns against the dollar


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Brazil and China have concluded an agreement on the use of yuan in trade transactions. What would that mean?

The other day, during the Brazil-China business forum in Beijing, China's Vice Minister of Commerce Guo Tingting, as if by the way, announced the abandonment of the dollar in mutual trade between the two countries. According to him, a joint clearing house has been established, and now the countries will be able to conduct cross-border transactions directly without having to convert their currencies into U.S. dollars.

"An agreement has been signed with Brazil on payment in yuan, which greatly facilitates our trade. We are going to expand cooperation in food and minerals, to look for exports of high value-added goods from China to Brazil and from Brazil to China," the Brazilian newspaper Folha de Sao Paulo quoted the minister as saying.

In fact, it is about the transition to national currencies in mutual trade and the creation of technical mechanisms of payments (instead of any SWIFT).

It is noteworthy that the Chinese media do not pay much attention to this news. Or they don't want to advertise it much. However, this event is not an ordinary one, although it is among very similar ones.

The fact is that the trade turnover between the two countries has reached $150 billion (may readers forgive the reference to American units). But, by all appearances, this figure will soon be counted exclusively in yuan. It should be taken into account that China is Brazil's largest foreign trade partner, with the largest volume of Brazilian exports going to the neighboring United States. Correspondingly, American dollars come from there. Trade with most of Brazil's partners, including in Latin America, is counted and conducted in dollars. But despite this, Brazil has decided to switch to yuan in its relations with China.

It is clear that the initiator of this transition was Beijing. It is also obvious that this is more than a political decision. Difficulties in the transition to national currencies in mutual trade, for example, between China and Russia, are that Chinese private and state companies are interested in obtaining a freely convertible currency. As a rule, they trade all over the world, and the proceeds from their goods should be allowed into international turnover. And there, as we know, the dollar reigns. Or it used to be. If Brazil decided to switch to yuan, other countries that have close trade relations with Beijing may follow suit.

Brazil is a member of the BRICS, and we can assume that other members of this organization are next in line. First of all, Russia, which has long been working with China to transfer trade to the yuan and rubles. At the end of last year, 50 percent of mutual settlements were made in national currencies. In the EAEU, three-quarters of all trade is conducted in national currencies.

There are two more important points here. Brazil will have the yuan, and it will be able to pay with it to Russian suppliers. And this is followed by the natural circulation of the yuan. Brazil is increasing its oil production and supplying it to China and other countries. We can assume that this will have some effect on the global energy market.

Official Washington remains silent on the matter. However, China and Brazil's move to trade in national currencies was commented by Elon Musk, who does not go for a word in his pocket. As the billionaire wrote on Twitter (the social network is blocked in Russia), because of the "clumsy" U.S. policy more and more countries are trying to abandon the dollar. According to Musk, combined with Washington's excessive government spending, which now shifts part of the inflation rate to other countries, this could become a "serious problem."

To be objective, the problem did not appear yesterday. It only worsened with the imposition of large-scale sanctions (in fact, a trade war) against China by President Trump's administration. And after the start of the U.S. hybrid war against Russia, it reached its peak. More and more nations are cautiously reducing their trade in U.S. dollars, that toxic currency. Who knows what the next country will fall under the hot hand of Washington and lose their savings in "greenbacks" overnight?

The ASEAN countries (Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia) have recently announced the transition to national currencies. The trade volume of the association is about $500 billion. What will happen when China begins to trade with these countries in national currencies? After all, ASEAN is China's largest trading partner, with trade volume exceeding $975 billion. This is much more than with the EU ($847 billion).

It is worth recalling that China is actively working to convert energy trade with OPEC countries into national currencies. Such an agreement already exists with Saudi Arabia. And this is already undermining the binding of the energy market to the dollar, behind which the full collapse of the "greenback" looms.

Today, 40 percent of the world trade - about $10 trillion - is settled in dollars. Half of it is accounted for by Western countries, and about half - by the so-called non-democratic countries. If it goes at this rate, then in a couple of years the circulation of the dollar will be limited to the so-called collective West. And the members of this dollar community will have to look for yuan and other rupees to buy something on the world market. And no U.S. military bases scattered around the world will help the dollar.

Now about assets. China, which back in 2019 was the main holder of U.S. government debt securities, with $1.2 trillion, has now reduced its securities portfolio to $800 billion. And continues to get rid of them. Now the biggest creditor of the U.S. is their vassal, Japan. But they are also getting rid of so called "treasuries". Other holders are doing the same.

To summarize, China has begun (or intensified, as one likes) its all-out campaign against the dollar as a reserve currency, to strengthen the yuan as such. Of course, this big campaign or leap will not end tomorrow. Consider that China itself has relied on the dollar for decades, trading with the rest of the world in it. In the PRC, people who have holdings in the U.S. currency, conducting all business in it, probably much more than in Russia. And "foreign agents" are a dime a dozen there. However, among the key decisions on restructuring the management made by the top leadership of China not so long ago, there is the following: to create a special commission under the Central Committee of the Communist Party of China on finance. It will be transferred from the People's Bank of China (the equivalent of Russia's Central Bank) the supreme control over finance, securities and other currency exchanges. This super-mega-regulator, apparently, will have to ensure the smooth movement towards financial sovereignty and detachment from the dollar. And there will be fewer "foreign agents" in this area.