As speculation over the demise of the dollar grows, it suits China to fan the flames and pitch Yuan as an alternative
China is hitting out at American financial dominance as relations between the two nations have nosedived in the recent past. In this endeavour, it is using issues related to the Global South. China is peeved about the United States (US) shooting down a “spy balloon” in the latter’s airspace and the grilling of the head of TikTok, a Chinese tech platform. Conversely, Chinese President Xi Jinping’s trip to meet Russian President Vladimir Putin and its drills in retaliation to Taiwanese President Tsai Ing-wen’s trip to the US has irked America. China assesses its relations with the US to be beyond repair. This is evidenced from Chinese strategist Wang Jisi’s assertion that Sino-US relations had deteriorated due to the domestic factors in both nations and that no amount of dialogue between the two would improve the situation.
< style="color: #0069a6;">China assesses its relations with the US to be beyond repair.
This has led to China’s new broadside against American financial hegemony. In this regard, a spate of bank collapses in the US and ‘friendly fire’ in the form of French President Emmanuel Macron’s criticism against the “extra-territoriality of the US dollar” have also helped China stir up the debate on American economic hegemony.
Commentators in Chinese-state media have accused the US’s monetary policy, instituted since the start of the pandemic in 2020, of creating record inflation and risks for other developing economies. The article specifically cites the case of Argentina, where inflation, for the first time since the 1990s, breached the 100-percent mark, reasoning that the “oversupply” of American dollars has caused this spike. The commentary goes on to add further that American interest rate increases have led to a tightening of liquidity in global financial markets, exacerbating the flight of capital, and currency depreciation in developing economies. Furthermore, the paper adds that the pressure on countries to repay dollar-denominated debt has increased sharply, putting low-income countries at high risk of default or in debt distress. The article juxtaposes the plight of these nations against the US’s thinking that the 1998 Asian Financial Crisis was an opportunity for America Inc. to acquire assets in sectors hitherto closed to foreign investment.
< style="color: #0069a6;">In the American system, there is a great deal of collusion between political elites and the financial sector, which has led to special interest groups taking over and manipulating the rules to their benefit and to the detriment of bank depositors.
Another commentator argues that, in the American system, there is a great deal of collusion between political elites and the financial sector, which has led to special interest groups taking over and manipulating the rules to their benefit and to the detriment of bank depositors. The article cites the case of former Congressman, Barney Frank, pointing out that the US politician actively pursued tough banking regulation during his legislative stint, but made a U-turn advocating financial deregulation upon joining the board of Signature Bank, which was shut down by US regulators recently. The commentator adds that Silicon Valley Bank, which went bust recently, had more political appointees at the decision-making level than those proficient in investment banking.
More recently, there has been a great deal of concern expressed with respect to the interplay between the developing world and America. An article published in China’s nationalist media outlet, Guancha, pits China’s ‘Laos-Cambodia’ development prototype against America’s ‘Iraq-Afghanistan’ model, talking up the former’s infrastructure projects undertaken in Asia under the Belt and Road Initiative (BRI). It points to “dollar weaponisation” used against Cuba, North Korea, and Venezuela by the Obama administration, stating that nearly one-third of the countries in the world faced US commercial or financial sanctions at some point in time. The article compares the Sino-Russian cooperation in the economic sphere and local currency arrangement initiated by China to the expansion of the US in North America in the late 19th century, which created a unified market ning the continent. In a recent paper on Afghanistan, China blamed America for unilaterally imposing sanctions on the nation and hampering its progress by seizing Afghanistan’s overseas assets. The paper, while being purported as a continuation of Beijing’s efforts to support peaceful solutions for ‘heated geopolitical issues’, is part of China’s efforts to position itself as a ‘more qualified’ leader of an alternative international order and attack US hegemony, both politically and financially.
Following on the heels of China’s 12-point peace proposal on Ukraine, the Chinese paper highlights the core principles that inform Beijing’s actions towards Afghanistan. First, it calls for the formation of a ‘moderate government’ in Kabul. Differentiating China’s selfless support to the Afghan people from the vested interests of other countries, it states how Beijing respects the country’s sovereignty and territorial integrity, and the ‘independent choice’ and the religious sentiments of the Afghan people. A central theme throughout the paper is how the US is responsible for the crisis in Afghanistan. Since the fall of Kabul in 2021, China has consistently targeted the US withdrawal, the freeze on the assets of the central bank of Afghanistan, and the unilateral actions imposed on the Taliban, calling US actions acts of ‘banditry’. This attack on US hegemony is part of China’s playbook of leveraging the crisis to entrench itself in the country. It also follows previous attempts to call on the US to ‘relinquish its hold on hegemony and seek peaceful coexistence and win-win cooperation with other countries on the basis of respect for sovereignty and territorial integrity’.
< style="color: #0069a6;">Following on the heels of China’s 12-point peace proposal on Ukraine, the Chinese paper highlights the core principles that inform Beijing’s actions towards Afghanistan.
China’s attack on US financial hegemony and sudden sympathy for the developing world are only a smokescreen for de-dollarisation and a greater pitch for the Yuan. A paper authored by Guang Xiaopu published on the website of Central Commission for Discipline Inspection (CCDI), which is tasked with monitoring corruption within the Communist Party of China, argues that since the transformation of the dollar from a common payment mechanism to an instrument of American power, its dominance is being questioned. The author posits that Russia is building an alternative payment system to replace the SWIFT system and the trend of currency blocs based on trade are challenging the US dollar’s dominance. The writer suggests that the erosion of trust in the dollar is an opportunity for China to expand the proportion of yuan in international trade settlement and currency reserves. The paper states that China must use instruments and institutions like the China Import and Export Fair, China International Fair for Trade in Services, and cross-border e-commerce zones to popularise the yuan, building on the human capital expertise in financial centres like Hong Kong and Shanghai.
To conclude, China relies on ancient Chinese doctrines to underpin its line of attack, one of which is ‘shēng dōng jī xī, which means create noise in the east and strike in the west. At a time when there is speculation about the demise of dollar dominance, it suits China to fuel this idea by citing case studies in the developing world. China would like us to forget how it usurped assets by building white-elephant infrastructure projects in South Asia and subsequently dragged its feet on pleas made by COVID-ravaged nations to restructure their debt. Moreover, raking up issues related to the developing world is also China’s attempt to counter India’s outreach to the Global South under its G20 presidency through forums like the Voice of Global South summit.
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Kalpit A Mankikar is a Fellow with Strategic Studies programme and is based out of ORFs Delhi centre. His research focusses on China specifically looking ...Read More +
Shivam Shekhawat is a Junior Fellow with ORF’s Strategic Studies Programme. Her research focuses primarily on India’s neighbourhood- particularly tracking the security, political and economic ...Read More +