The global economy has been dominated by the US dollar as the world’s reserve currency for decades, but recent developments have raised questions about the sustainability of this system. The Xi-Putin agreement, Saudi Arabia’s willingness to sell oil to China in yuan, and recent developments have accelerated the de-dollarization of the world economy, European ‘Modern Diplomacy’ writes with concern.
The Xi-Putin agreement, signed in 2014, aimed to promote trade and investment between China and Russia using their own currencies, the yuan, and the roble, respectively. This move challenged the dominance of the US dollar in international trade and finance.
The recent 2023 meeting between Presidents Xi and Putin further strengthened the partnership between China and Russia and raised concerns for the US as the two countries increase cooperation and trade using their own currencies.
Saudi Arabia’s shift towards selling oil in yuan is another significant development in the de-dollarization of the world economy. In 2023, Saudi Crown Prince Mohammed bin Salman and Chinese President Xi Jinping agreed to increase cooperation on energy and trade, including Saudi Arabia selling oil to China in yuan. Saudi Arabia, the world’s largest oil exporter, has traditionally sold oil in US dollars.
However, this shift could further reduce the dominance of the US dollar in international trade and finance, particularly in the oil market.
The de-dollarization of the world economy could have significant implications for China and other countries. As the world’s second-largest economy, China has been pushing for a more multipolar currency system to reduce its dependence on the US dollar. If more countries start to adopt alternative currencies for trade and investment, it could benefit China by reducing the need for it to hold large amounts of US dollars in its foreign exchange reserves.
This could also lead to the internationalization of the yuan and give China greater influence in the global financial system.
The impact on the US economy is also an important consideration. The dominance of the US dollar in international trade and finance has given the US significant economic power and has allowed it to exert influence over other countries through sanctions and other economic tools.
If the de-dollarization trend continues, it could undermine this power and make it more difficult for the US to achieve its foreign policy goals.
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