The US Dollar holds its place as the number one currency in the world. But for how much longer? This predominance is no longer evident for many emerging economies, particularly in the area separating Europe from China. We foresee a polarization of the monetary system, whereby the US dollar and the Chinese yuan will set the tone side by side.

Our analysts note that the coronavirus crisis and the war in Ukraine have only served to reinforce the discontentment towards the dominance of the dollar. They expressed that the next stage of financial globalization will bring about a “financial co-hegemony” of the Chinese yuan and the US dollar. See attached report.

Johan Geeroms, our Director of Risk Underwriting Benelux, refers to articles published in the Wall Street Journal concerning an oil deal between the world’s largest exporter (Saudi Arabia) and the world’s largest importer (China), which should be denominated in Chinese currency rather than dollars. “If there is a sector dependent on the dollar, it is the oil sector. We are talking about the heart of the American system. What we’re dealing with here is a powerful symbol.” 

“For our Western countries, the dollar is a long-established fact of life. But the situation is quite different in the vast majority of other countries in the world. Given the economic boom in Asia, it is logical that China seeks to impose the yuan as its main currency. This attempt is entirely in line with the growing tensions between the US and China. " For Johan Geeroms, the yuan is the “natural competitor of the dollar” and the euro will find itself “sandwiched”. “The weight of the euro is set to decline as global trade flows with the US and China continue to grow.” "

According to our analysts, the yuan will double its share of the global financial system within ten years. This growth should accelerate, bringing in its wake a multipolar system. The question then arises as to how the two currencies can co-exist. A pessimistic scenario would see the formation of two spheres of influence (the United States with its dollar on one side, China with its yuan on the other), without much trade between them.

According to Johan Geeroms, the rise of the yuan can only be understood in the light of the massive investments made under the Belt and Road initiative (the new Silk Road). China is investing hundreds of billions in infrastructure projects, such as port and power facilities, in more than 80 countries, mostly in Asia and Africa (but also in Europe). “These countries are experiencing strong growth in trade with China. It is therefore not surprising that China wishes to impose its own currency on this trade. "

While Europe is above all “preoccupied with itself”, many emerging countries are busy ensuring economic progress. For Johan Geeroms:“China enjoys an ideal position in this respect. We should also mention the technological innovations underway, especially in monetary terms. If China succeeds in combining the digital currency that its central bank uses extensively with blockchain technology, it will further strengthen its monetary lead. "

As for the consequences of this phenomenon, Johan Geeroms believes that: “Washington benefits from a means of political pressure, to the extent that countries need the dollar to carry out international trade. The same is of course true for the emergence of the yuan and China’s influence on the world. "

In recent years, China has strengthened its hold on European seaports. This is particularly true of the container terminals in Zeebrugge and Antwerp in Belgium. No less than 90% of the container terminals in Zeebrugge are now in the hands of the China Ocean Shipping Company (Cosco), the world’s largest shipping company and the world’s third largest container carrier. “This trend threatens to make EU member states more politically dependent on Beijing,” says Johan Geeroms.

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