China Thread.
China's 'Dual Circulation Economic Strategy' which expands domestic consumption and home-grow technologies (or those stolen without care for international patents) through international trade and investment has helped it become the world's biggest consumer market.
China's 'Dual Circulation Economic Strategy' which expands domestic consumption and home-grow technologies (or those stolen without care for international patents) through international trade and investment has helped it become the world's biggest consumer market.
The Yuan accounted for 13-14% of the Russian central bankβs foreign currency reserves in 2021, compared with just 0.1% in 2017. Dollar holdings dropped to 16.4%, from 46.3%. This shift is purposeful and part of a long-term strategic realignment.
With Saudi Arabia considering accepting yuan instead of dollar for oil sales. Nearly 80 percent of global oil sales are priced in dollars, and since the mid-1970s the Saudis have exclusively used the dollar for oil trading as part of a security agreement with the U.S. government.
The Saudis are also considering including yuan-denominated futures contracts, known as the PetroYuan, in the pricing model of Saudi Aramco. China buys more than 25% of the oil that Saudi Arabia exports. If priced in yuan, those sales would boost the standing of China's currency.
China is working hard to make the yuan the next global currency. Although presently a reserve currency, the yuan can't upstage the U.S. dollar quite yet.
That is unless the following scenarios happen: Central banks around the world choose to keep a total of roughly $700 billion worth of yuan in foreign exchange reserves.
According to the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) survey, total yuan foreign exchange reserves jumped to an equivalent of $287.46 billion, achieving nine consecutive quarters of growth.
To display this, in the 4th quarter of 2020, the US Dollar was still the most widely held currency by global central banks at 59.5 percent, followed by the euro at 20.5 percent, the yen at 5.9 percent in 2021, and the yuan at about 2.2 percent.
This % share of US dollar reserves held by central banks is the lowest level in 25 years. This partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions.
Much of that has come from the Euro, but should the yuan begin to be traded as a PetroYuan with Saudi Arabia, the expectation is that the yuan could move rapidly over the next 2-4 years to find parity with the yen.
This would be a monumental move. With inflation of the USD increasing, we are seeing an erosion of the purchasing power as the value of cash erodes at an alarming rate. This makes the Euro, Yen, and Yuan more attractive currencies to trade, settle, and hold in reserve.
Russia seeβs this and is dropping the dollar and holding more and more yuan in reserve. Saudi Arabia is making moves related to the possible PetroYuan. Venezuela is allowing Oil to be bought in Yuan. And BRICS nations have a small but emerging bank in the New Development Bank.
The expectation is that the US dollarβs share of global reserves will continue to fall as emerging markets and the Central Banks of Emerging economies seek further diversification of the currency composition of their reserves. Those falling into the BRICS orbit may prefer Yuan.
This sets up China, Russia, BRICS nations, and those within the BRICS orbit to avoid certain detrimental effects that may be associated with holding dollar reserves over the coming years and farther out into the coming decades. Things are shifting.
Be Kind To Your Neighbors.
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