Over the past year, more countries have begun to diversify their foreign exchange reserves due to sanctions imposed on Russia, which led to an unprecedented withdrawal from the United States dollar. While the US currency is still arguably the backbone of the global payment system today, the yuan’s appeal as an alternative currency is constantly growing.

China is negotiating agreements that expand the use of the yuan, and while it is not the only “competitor” of the dollar, it is considered the leading one, especially due to tensions between China and the United States, as well as Beijing’s cooperation with Russia since the outbreak of the war.

However, the dollar is extremely difficult to “overthrow the throne.” And most importantly, according to Business Insider, China itself would never want to de-dollarize the global economy for the following three reasons:

1. He wants to keep momentum

While Beijing appears ready to overturn the dollar’s global dominance, it wants to do so on its own terms, explains Rory Green, chief China economist at TS Lombard.

The country’s central bank has acted cautiously over the past decade to promote the use of the yuan, but without changing the dynamics, as it considers them necessary for developing independent monetary policy.

Thus, according to Green, China does not want and cannot make the yuan the basis of the international financial system. But it has the potential to globalize the yuan, increasing its influence locally and especially in the countries where it is traded.

Beijing seeks to globalize the yuan by strengthening its influence locally and especially in the countries where it is traded.

2. He doesn’t want permanent scarcity

The place of the dollar in the international payment system brings with it a heavy burden for the United States, a permanent current account deficit. This is because international demand for dollars is higher than US demand for imports, which is also paid for in dollars.

Thus, in order to maintain the position of the dollar in the global foreign exchange market, the deficit will constantly increase, leaving the country subject to sudden changes in the global system of flows. And China cannot take on such a burden, says Green: “It lacks the political will and financial capacity – without major structural changes – to run a permanent current account deficit and provide sufficient yuan liquidity internationally.”

3. He wants diversified investments

Even if China tries to overthrow the dollar, it is extremely difficult to do so, given its absolute dominance. In addition, at the moment, even the role of the euro is greater than the role of the yuan. It is significant that 43% of global payments made through SWIFT in April were in dollars and 32% in euros, and only 2.3% in yuan.

The share of the dollar in international reserves is also huge and in particular it amounted to 54% in the last quarter of 2022. The share of the euro was 20%, and the yuan only 2.5%. That means no alternatives in terms of international reserves, Green said, which is a problem for China’s central bank as it means it will have to hold huge amounts of yuan-denominated bonds, as the Fed is currently doing. US bonds.

As a result, the dominance of the yuan against the dollar seems rather unlikely. “China’s geopolitical scene and economic weight are driving – and will continue to drive – yuan acceptance in trade and international reserves. “Strengthening the global use of the yuan will provide an opportunity to circumvent sanctions, but the dollar is not at risk,” Greene said.