The End of an Era: USD Supremacy Under Threat

From last 8 decades, US-dollar is the most powerful currency in the world as it is known as a Reserve Currency.

Let’s first discuss what a reserve currency is.

A reserve currency is a currency that is recognized globally and is used for global transactions involving trade and investments.

The US dollar has held this position for so long because of its stability and resiliency as its value is predictable and, for that reason, countries around the world use USD for their global transactions.

The United States benefits greatly from this a lot as US-dollar has a unique status of reserve currency around the world. Countries use US-Dollar and hold on to those, and for that reason US has greater buying power, also an influence on world’s major organizations and on many countries too.

China-Saudi Agreement

China is on a mission to internationalize the Yuan and it is gaining more and more attention due to the recent developments between China and Saudi Arabia, China is looking forward to use Yuan to settle oil bills instead of US-Dollar while, Saudi Arabia is also considering switch, a switch from Dollar to Yuan. Saudi Arabia is looking for more economic independence, and it is too early to say, but in the future, we may see the "Petroyuan" instead of the "Petrodollar". It is important to remember that Saudi Arabia is the largest oil exporter, while China is the largest oil importer in the world.

China-Brazil Deal Strikes at the Dollar

China is Brazil’s biggest trading partner with around $150.5 billion in trade last year. They have agreed to settle down their trade bills in their native currencies by ditching US-Dollar. After this deal, in few days Chinese Yuan became     the second-largest reserve currency for Brazil, surpassing the euro. Yuan now accounts for 5.37% of Brazilian Central Bank holdings, while the Euro is at 4.74%.

China-Brazil agreement of trading in their local currencies is a major concern for the US, as the Yuan emerges as a serious contender to replace the US-Dollar as a reserve currency. China is dealing with 41 countries around the globe in their native currency for transactions, and the total value of these agreements are exceeds $500 billion.

China-Russia Deal - Natural Gas

China has become a major buyer of Russian oil and natural gas. Both countries trading in their local currencies by ditching US-Dollar.

President Putin encouraging the use of yuan, to replace dollar reserves with yuan and euros after invading in Ukraine Russia is facing sanctions from West for that reason Russian leadership turned to China as of now 17 % of Russia’s foreign reserves are denominated in Yuan. Clearly, to avoid dollar dominance Russian is depending on Chinese Yuan a lot and it played a major part in the rise of Yuan’s demand as a reserve currency in recent times.

BRICS

Speculations are around that BRICS (Brazil, Russia, India, China, South Africa) are also working on developing new currency to settle trades which is baked by gold and other valuable resources, but more details are expected to come in upcoming BRICS Summit in South Africa in August.

Closing Thoughts

Clearly, de-dollarization is rising especially after recent developments but it’s still early to say who will be the next.

Stability is very important for any reserve currency and to replace Dollar not only Chinese Yuan is a challenger, but Indian Rupee is also a serious contender (India is trading with 18 countries in Indian rupee).

US-Dollar has worldwide acceptance, must look forward that Yuan will get the same or not if it does not happen then we will see a huge division among the different parts of the world as, many countries are working in groups to introduce either a new currency for trade or to trade in their local currencies.