The dollar's dominance in the global economy has been losing momentum since the start of the war in Ukraine and Western sanctions against Russia, as many emerging countries want to avoid excessive dealing with the US currency, and this may benefit the Chinese yuan in the face of this dominance.

Many countries' concern about America's dominance of the global financial system and its ability to weaponize it have led them to test other alternatives to reduce the dollar's dominance; while the United States and other Western countries imposed economic sanctions on Russia in response to its war on Ukraine, Moscow and the Chinese government have cooperated to reduce dependence on the dollar and establish cooperation between their financial systems.

The United States is currently facing a debt crisis, and if it defaults, it will threaten the dollar's global status as a payment or reserve currency, forcing the government and companies to pay their international bills in another currency.

The French newspaper La Tribune published a report discussing the dedollarization of the global economy as a struggle against the military and economic hegemony of the United States.

According to the report, the issue of dollar dominance is seen today from the perspective of the competition between China and the United States for global leadership, above all through the trade war that has intensified since Donald Trump came to the presidency, and the issue has gained more momentum since the Russian war on Ukraine, reviving what looks like a new cold war between emerging and developed countries.

The United States is facing a debt crisis, which threatens the status of its currency, the dollar (Getty Images)

Stay away from Western payment systems

Indonesian President Joko Widodo said in Jakarta at the end of March at the Association of Southeast Asian Nations summit that "it is necessary to stay away from Western payment systems to protect our transactions from potential geopolitical repercussions."

The Association of Southeast Asian Nations (ASEAN) includes 10 countries representing more than 664 million people, and discussions at the Jakarta summit focused on how to reduce dependence not only on the dollar, but also on the euro, yen and pound sterling, and adopt a financial system that encourages credit cards issued by local banks instead of those of the Visa and MasterCard networks.

In addition, the use of the yuan instead of the dollar has increased among emerging countries in recent months, especially in terms of raw materials of which China is the world's largest importer, Russian and Saudi oil, UAE gas, or even Brazilian or Argentine soybeans.

These options do not negate the continued dominance of the US currency; the dollar remains the most widely used international currency for paying global bills and financing international trade.

Safe Harbor Requirements

Emerging countries that are not allied with the West seeking to develop and protect their trade, reduce the cost of transactions and diversify their foreign currency reserves, without using the dollar, is another matter, because ending "dollarization" may not be the economic and financial solution that some assume.

Indeed, if the United States can expand its foreign-financed deficit through its dollar purchases, this "exorbitant privilege" results from the fact that the dominant currency entails greater responsibilities, so when global crises arise, all countries rush to the dollar as a safe haven.

The strong growth in demand for the dollar leads to a significant appreciation in its value, which reduces the value of assets that the United States owns outside the country and increases the assets owned in the United States by foreign countries.

Is China willing to accept such losses? To take advantage of this privilege it will have to accept the floating yuan, that is, its value becomes constant through supply and demand in the foreign exchange market, and it loses direct control over the exchange rate, and this change is an option rejected by the Chinese Communist Party because it will deprive it of the powers to control the country's economy.

The use of the yuan instead of the dollar among emerging countries has increased in recent months (Getty Images)

The problem of Chinese loans

Since 2000, Beijing has spent $240 billion cumulatively to bail out 22 troubled countries, which caused panic for many countries, led by the United States, to see China did not commit to restructuring the debt of many countries, especially in Africa, because the dominant currency must ensure financial liquidity, especially during periods of crisis, because in In the event of a shortage of dollars, foreign central banks have no choice but to sharply tighten their monetary policies to avoid a rapid depreciation of their currency that harms local economies.

That is why the Federal Reserve has doubled since the 2007-2008 financial crisis through "swap" agreements with major central banks around the world. This system, which provides for the exchange of currencies between two central banks, makes it possible to obtain liquidity in different currencies from their respective issuing institutions.

China also concluded swap agreements with central banks of 49 countries between 2009 and 2020, including Nigeria and Britain, and these liquidity facilities are aimed first at facilitating trade and investment in a bilateral framework, by reducing the cost of local currency fluctuation against the greenback, while avoiding the political disadvantages of the dollar exceeding territorial boundaries.

If Beijing intends to use its currency to strengthen its presence in the global economy, Beijing must maintain and increase market share in its trade war against the United States, not in the desire to make the yuan a dominant currency.