Macroscope | Sorry folks, but there is no Chinese alternative to the petrodollar
‘Those who foresee in the pipeline a petroyuan to effectively challenge the hegemony of the petrodollar are ignoring the practical realities of the global financial system’
An emergent petroyuan to rival the petrodollar might appeal to those who resent Uncle Sam’s enjoyment of the privileges that accrue from the world having to hold greenbacks to pay for its oil and gas. It might also undermine the global reserve status of the US dollar. The only problem is that in practical terms the idea is a non-starter.
It might not be fashionable to admit it but the world’s global monetary system rests on a bedrock of US dollars, while so central to the US national interest is the dominant reserve currency status of the greenback that Washington could hardly be expected to cheerfully acquiesce to an erosion of its currency’s hegemonic status.
As regards the global monetary system, as the Bank for International Settlements (BIS) has reported, at the end of March there already existed some US$10.7 trillion of on-balance-sheet debt being held by companies and governments outside the United States.
Additionally, in September the BIS also said there could be another US$13 trillion of debt held off-balance-sheet.
The bottom line is simple. Those who have borrowed in US dollars will have to repay greenbacks to the lenders, not any other currency.