Last March, China conducted more trans-border transactions in the Chinese yuan (CNY) than in the U.S. dollar (USD), marking a historic shift. Amidst uncertain international power dynamics, China has leveraged allied developing economies in an attempt to institute the CNY as the new standard global currency. If the United States does not make a bold move, a new Sinocentric global economy could begin to diminish democracy.
The strength of a currency is crucial to the success of an economy. For example, international confidence in the USD and the U.S.’s ability to pay back debts and support its currency has been a driving force behind the country’s global dominance for the last century. With such power, the U.S. has been able to become a trade behemoth. However, this status hangs in the balance in a world with a powerful CNY.
The Brazil-Russia-India-China-South Africa (BRICS) Bloc laid the groundwork for the economic alliances we see forming today. This bloc eliminated volatile exchange markets and lowered the cost of trade by moving transactions to local currency. While the strength of this alliance over the last decade has greatly diminished the USD’s dominance, it has been largely ignored in US foreign policy.
For instance, the war in Russia marked a watershed moment for Chinese trade; as extreme sanctions necessitated the need to remedy the shortage of USD, China offered the CNY as a non-sanctioned currency to further fund Russia’s war machine and to fuel their presence in international trade.
India has also launched a massive effort to dethrone the USD. Last month, the establishment of Special Vostro Rupee Accounts (SVRAs) created a system in which all foreign trade could be conducted in rupees. 18 countries, many of which are rapidly developing African nations, have already signed up.
Disregarding monetary and economic goals, this shift — now occurring in many countries ideologically aligned with China — restricts the U.S. and other democracies’ ability to fight against foreign threats with tariffs and embargoes. Without access to these tools, a future marked by international instability and economic peril is increasingly probable.
A slew of political and economic issues have blinded the American public to the current administration’s indifference to pressing economic threats. With high inflation and presidential controversy consuming primetime television and providing a distraction, the Chinese and their allies have orchestrated a coup d’état of the currency market.
This illustrates a pressing issue in American politics: if a problem isn’t relevant to a policymaker’s constituents, regardless of moral duty, it will not be solved in legislatures. The possibility of a trade war and lengthy negotiations is high, and large oppositions could arise without common knowledge of the problem at hand. Therefore, the Biden administration must cease pandering to its supporters and instead make it clear to the world that China’s efforts to dethrone the USD are intolerable.
If no action is taken, the results could be economically and politically catastrophic. Economics could very well be the first battleground in the war between democracy and autocracy if the USD loses its prominence. It is crucial that the Biden administration not remain a bystander; rather, they must assert dominance and prevent future threats to America’s position.
