Does the dollar have prospects in connection with the active development of the yuan?
Since 2014, when other countries imposed massive sanctions against Russia, there have been regular discussions in the government about the need to reduce the use of U.S. currency. This year, investors have also joined the authorities, who are increasingly inclined to increase the share of other money, such as the yuan or the yen, when considering the prospects of the dollar. Ray Dalio, founder of Bridgewater, a large hedge fund, agrees with the position of Russian businessmen. He notes that the use of the dollar in the current environment carries certain risks.
Dalio argues that in the future people will choose which currency they will use. And the one that demonstrates the greatest reliability and competitiveness will be in the highest demand. It is possible that the yuan will begin to strengthen its position on the world market, which will be a threat to the dollar. In addition, there are other risks for the U.S. currency, including within the country. For example, the increasing number of loans to the population is a growing problem, and with it the debts are growing as well. In the long term, such trends can lead to a depreciation of the currency.
However, we should also consider the fact that as soon as the world experiences another economic crisis, investors actively begin to refer to the yuan as the new dollar. China is developing by leaps and bounds, it has a strong economy. However, for the national currency of the country to displace the dollar in the global sense, it will take a long time or a serious crisis to redistribute power in the world.
For now the main currencies for savings remain the dollar, the pound, the Swiss franc and the euro. The fact is that investors look at a number of factors that determine the reliability of money. Important among them is a country’s ability to repay debts and ensure political and economic stability. These characteristics are not yet applicable to China, where the state is trying to strictly regulate business. In addition, Beijing is subject to sanctions from the EU and the U.S., which also reduces the attractiveness of the yuan.
Investors are also concerned that the Chinese government will change the mechanism of currency regulation and the exchange rate will fluctuate, which may have a significant impact on business processes.
However, the yuan is steadily evolving. Over the past year, its exchange rate has appreciated significantly, making it a record high against the dollar. Currency appreciation has a negative impact on the economic performance of the country, and to reduce risks, the Chinese government has increased the volume of foreign exchange reserves for local banks. This also suggests that the growth of the yuan is limited, which means that for now it does not threaten the dollar.
