August 15 marked the 50th anniversary of the end of Bretton Woods, the United Nations monetary and financial conference that established world economic policies that were in effect until the early 1970s when the United States (USA) ended. to the links between the dollar and gold. Since then, the US dollar has continued to be the international reference currency, but without the backing of precious metals but based on a fiduciary system, backed by mere confidence in the US economy and government.
The dollar is not just a reserve asset, it is the predominant currency in business transactions. Many commodities, including copper and oil, are priced and traded primarily in dollars. The dollar is also a pivot currency, as it is used as an intermediate step rather than bilaterally trading two currencies. There is no compelling altcoin that has the breadth, depth, and ubiquity of the US dollar.
This situation gives the United States a fundamental advantage since its large trade deficits, and more generally current account deficits, can be financed with savings from the rest of the world. This dominant position has even led the US to use the dollar-based global transaction system as a coercive tool against its enemies. This fact undoubtedly poses a risk to US competitors and / or opponents, which has prompted the search for an alternative payment system.
The launch of the euro at the beginning of 1999, suggested that the European economic and monetary union (EMU) could offer an alternative to the American leadership, but Europe has not achieved the necessary complete monetary union or the banking and fiscal union.
China’s remarkable recovery from its historic role as one of the world’s leading economies puts the nation in direct competition with the US Today, China is the main investor, trading partner, and lender for many emerging and even developed nations. Therefore, although the dispute reaches many areas (technological, diplomatic and military, among others), it will be in the financial sphere and in the hegemony of the currency that a large part of the result of this competition will be played.
It is not likely that China can replace the United States, but it is likely to slow down the consolidation of American leadership, favoring the emergence of a multipolar world.
The latest decisions of the Chinese government must be understood in this context. China is preparing for what it estimates will be relevant shocks in the coming years, derived mainly from the consequences of the expansionary monetary and fiscal policy in the US and the deterioration of the relationship between the two countries.
Thus, while the rest of the world maintains full-steam stimulus policies, China applies the brakes. And this is also how the recent campaign by Beijing that seeks greater control of its technological giants should be understood, which began last November with the blocking of the Public Offering of Shares of the Ant Group of Jack Ma. On the other hand, one of the objectives of the new Five-year plan is to strengthen regulatory control, especially in other technology companies that could open flanks to the financial control that China needs to consolidate the digital yuan, a key element in the race to reduce the influence of the dollar; a crucial long-term goal for China.
Juan Carlos Guajardo, Executive Director of Plusmining.
Translated with Google Translator