Macroscope | Why the yuan isn’t a big winner in shift away from US dollar
- Sanctions on Russia have led to predictions of the break-up of the global monetary system, with China as the main challenger to US dollar hegemony
- Yet, for all the signs of the yuan’s rise, there are reasons to be sceptical: China’s need for stability, its murky regulatory landscape, and desire to control its currency
For a sign of the impact of geopolitical realignments on foreign exchange markets, look no further than the surge in trading volumes between the currencies of China and Russia, the two main challengers to US supremacy.
According to data from Bloomberg, monthly volumes in the rouble-yuan pair have soared 1067 per cent since Russia invaded Ukraine in late February. By contrast, trading between the rouble and the US dollar has plunged to its lowest level in a decade, based on its 20-day moving average.
Yet, for some currency strategists, concerns that the dollar’s dominant role in the global financial system is being ruthlessly exploited add impetus to forces that have caused its share of international foreign exchange reserves to fall from just over 70 per cent at the turn of the century to 59 per cent today.
In a provocative report published on March 7, Credit Suisse strategist Zoltan Pozsar argued that the sanctions-induced commodity shock marked a regime shift in the global monetary system. The new order, he claimed, would be “centred around commodity-based currencies in the East that is likely to weaken the Eurodollar system and contribute to inflationary forces in the West”.