Financial settlements arising from commercial and investment transactions around the world witnessed some kind of stability after World War II, with the dollar on the throne of several other international currencies, and it gained the greatest confidence from the countries of the world.
Although America abandoned the gold-gold peg in 1971, it was able to involve the whole world in bearing the risks of dealing and keeping the dollar, which accounts for 60% of the investments of countries' foreign exchange reserves.
Although the matter has witnessed other developments since the global financial crisis in 2008, as European countries and China demanded to search for another currency for international financial settlements, which was rejected by America at the time, and it still insists on its position of imposing the dominance of its currency over the financial and monetary system.
What are the manifestations of China's economic presence?
Since the beginning of the third millennium, the global economic scene has known the emergence of China's economic role, as Beijing has now become the second economic power after the United States of America.
According to the World Bank base figures for the year 2021, the Chinese GDP amounted to 17.7 trillion dollars, which represents 18.4 percent of the global GDP in the same year, which amounted to 96.1 trillion dollars.
There is economic progress to China's credit globally;
Such as international trade, providing loans to developing and least developed countries, as well as competing with America and Europe in the production of technology, which is one of the important and decisive issues in the context of the Chinese conflict with America in particular, and if China wrote to resolve this battle, it will be able to lead the world economically.
China's merchandise exports amounted to $3.36 trillion in 2021, and its merchandise imports in the same year amounted to $2.68 trillion, which means that China's trade balance with the world results in a surplus of $676 billion.
In 2016, China succeeded - through negotiations with the International Monetary Fund - in making its local currency, the yuan, one of the international currencies capable of being a component of countries' foreign exchange reserves, a step that paved the way for the Chinese currency to set its foot on the ladder of presence in the global monetary and financial system.
What is the reality of the yuan as a clearing currency?
What is meant by the yuan being a clearing currency is that other countries that have commercial and financial dealings with China can pay in the Chinese currency;
Thus, this encourages the central banks of countries to hold the yuan as part of their cash reserves.
Since its currency was adopted by the International Monetary Fund as one of the valid currencies within the components of international reserves, China has sought to establish clearing centers in several regions, including Qatar and the Emirates in the Gulf region, and there are other clearing centers in Asian and European countries, and China pledged that its central bank would provide countries Wanting to keep the yuan as much as it needs from him.
According to the latest figures on the performance of the yuan as a currency represented in foreign exchange reserves, it ranks fourth in the world, after the dollar, the euro and the Japanese yen, with a rate of up to 2.8% of the total foreign exchange reserves in the central banks of different countries, which is a better percentage than it was 2016 at 1.08%.
It is expected that in the coming years, China will seek to empower its currency in the international market, as the currency of financial and trade settlements, and China is also taking steps in the framework of issuing international bonds denominated in yuan.
The bilateral debt provided by China to developing and least developed countries is estimated at nearly one trillion dollars, which is an estimate, and there is no official census from China.
Beijing is a competitor to international financial institutions in lending to developing and least developed countries.
What does China gain from clearing the yuan?
We have to read the Chinese move to make the yuan a clearing currency in its financial and commercial dealings with other countries in light of two things: the first is that it is not the first currency to take this step at the global level after the dollar, but there are other currencies such as the euro, the Japanese yen, the pound sterling, the Australian dollar and the Canadian dollar and others.
The other thing is that this step should be read in light of the conflict between China and America to lead the world economically, a struggle that is not hidden from anyone, but the yuan has a long time and not easy challenges to compete with the dollar globally.
Undoubtedly, adopting the yuan move as a clearing currency will partially relieve China and its dealers to bear the bill of financial and monetary dependency on US monetary policy, but this will impose more challenges on China to meet the needs of countries willing to pay in their local currency.
Does yuan clearing affect the dollar's position in international settlements?
We have to mention that China at the beginning of the third millennium had good economic potentials, but it was not in competition with the United States of America, and China is now the second economic power in the world, and it is not hidden from any of the economic wars that exist between it and America.
China's beginning to adopt its currency as a major component of foreign exchange reserves in central banks is a step that must be taken into account, and it is subject to development unless America places obstacles in front of it.
What China has taken in this space by inserting its local currency into the global monetary and financial system is undoubtedly a deduction from the position of the dollar.
But we must be aware that, according to a recent study on the International Monetary Fund’s website, the dollar holds 41% of the world’s foreign exchange reserves, and it also represents 60% of global payment currencies, and the dollar has a 60% share of international debt, and 52 % of international loan payments.
In order for the yuan to compete with the dollar in these areas, more economic factors are required, as well as taking into account the time factor.
The dollar holds 41% of the world's foreign exchange reserves (Reuters)
What are the challenges facing the yuan clearing process?
On top of these challenges is that the Chinese Central Bank does not enjoy complete independence, and the state interferes in its affairs, and the second point is the absence of the rule of law in China, in light of its current political system, and hence many countries lack confidence in the Chinese currency.
At the level of China itself, it is one of the largest investors in US Treasuries with about a trillion dollars, and it is ranked second in the world after Japan, according to this indicator, and China has foreign exchange reserves estimated at 3.1 trillion dollars.
But if we look at the major trading partners with China, we find that at the level of exports, America accounts for 17.5% of Chinese merchandise exports, and it is logical that America will not accept to settle its dealings with China in yuan.
On the level of the top 10 importers of Chinese goods, we find among them outside the US system only Vietnam, which imports 4.4% of China's exports, and India, which imports 2.6% of Chinese exports.
As for Chinese merchandise imports, the top 10 supplier countries to China come Japan with 8.4%, South Korea with 8.4%, America 6.6%, Australia 5.7%, Germany 5.1%, and Malaysia 3.6%, then Russia comes at the bottom of the list with 2.8 %.
It is known that China's imports from Russia are largely represented in imports of oil and natural gas, which weakens the status and development of trade between the two countries, although it guarantees its continuity.
Hence, it can be said that China has set its foot on the scale of the global financial and monetary system, but its obtaining more payment in its currency to be in a competitive position with the dollar will require decades to come, assuming that America will ease its pressure on China during the coming period.
Will the yuan clearing enable countries not friendly to America to ease the pressure of sanctions?
Every tool that allows countries that suffer from US sanctions to evade those sanctions or mitigate their negative effects is undoubtedly a gain for these countries, and in this context, the yuan clearing process can be considered among these tools that mitigate the negative effects of US sanctions on some countries.
But clearing in yuan is not a magic wand to solve the problems of US economic sanctions on some countries, especially since China itself suffers from a war with America, and it has a major weakness in importing American technology, and we all know what Chinese companies suffer from America’s placing restrictions on the export of semi-transportation to companies. China, or America's demand for its citizens, engineers and administrators working in Chinese technology companies, to leave.