Russia and China are brewing up a challenge to dollar dominance by creating a new reserve currency

[xizhimen]

Russia and China are brewing up a challenge to dollar dominance by creating a new reserve currency​

Business Insider US
June. 24 2022

Russia and the other 'BRICS' countries are working on an alternative reserve currency that would rival the IMF's SDR. Sputnik/Alexey Nikolsky/Kremlin via Reuters

• Russia and China are developing a new reserve currency with other BRICS countries, President Vladimir Putin said.
• The basket currency would rival a US-dominated IMF alternative and let Russia widen its influence, an analyst said.
• The dollar's dominance is already eroding as central banks diversify into the Chinese yuan and smaller currencies.

Russia is ready to develop a new global reserve currency alongside China and other BRICS nations, in a potential challenge to the dominance of the US dollar.

President Vladimir Putin signaled the new reserve currency would be based on a basket of currencies from the group's members: Brazil, Russia, India, China, and South Africa.

"The matter of creating the international reserve currency based on the basket of currencies of our countries is under review," Putin told the BRICS Business Forum on Wednesday, according to a TASS report. "We are ready to openly work with all fair partners."

The dollar has long been seen as the world's reserve currency, but its dominance in share of international currency reserves is waning. Central banks are looking to diversify their holdings into currencies like the yuan, as well as into non-traditional areas like the the Swedish krona and the South Korean won, according to the International Monetary Fund.

"This is a move to address the perceived US-hegemony of the IMF," ING's global head of markets Chris Turner said in a note. "It will allow BRICS to build their own sphere of influence and unit of currency within that sphere."

Russia's move comes after Western sanctions imposed over the Ukraine war all but cut the country out of the global financial system, curtailing access to its dollars and putting pressure on its economy.

"The speed with which western nations and its allies sanctioned Russian FX reserves (freezing around half) no doubt shocked Russian authorities," ING's Turner said.

"The Central Bank of Russia effectively admitted as much, and no doubt some BRICS nations — especially China — took notice of the speed and stealth at which the US Treasury moved," he added.

Those sanctions have likely encouraged Moscow and Beijing to work on an alternative to the IMF's international reserve asset, the special drawing rights, Turner suggested.

While it's not a reserve currency, the SDR is based on a basket of currencies made up of the US dollar, the euro, the British pound and Japan's yen — as well as China's yuan.

One possibility is that the BRICS basket currency could attract the reserves not just of the group's members, but also countries already in their range of influence, he suggested. These include nations in South Asia and the Middle East.

Russia has seen its currency the rouble rebound to above its pre-war level, thanks to central bank support, after it plunged 70% in less than two weeks after the Ukraine invasion. It has risen 15.2% in June to 1.87 cents. Meanwhile, the yuan has held steady at around $0.15 over the same period.

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[xizhimen]

Even China alone has a bigger GDP than the whole EU, I still prefer to keep our own Yuan currency, not kind of Euro like paper money which no national emotions are attached to it.

 

[guest12]

Good luck

 

[Merzifonlu]

If they mean FIAT money Yuan, it won't work. Since it uses the US/EU dollar and the SWIFT system as weapons, every country that attaches importance to its independence is now opposed to the dollar being a reserve currency. But that doesn't mean they will replace the Dollar with the Yuan.

IMO only viable solution is to make gold (the one and only real currency), the reserve currency of international trade. But since China (like every other state) is power/control freak and greedy, she only wants the FIAT currency Yuan to replace another FIAT currency, the Dollar. She does not want a permanent solution.

When everyone gets tired of endless trade wars and gets heavy economic injuries, they will do what I say. IMO We still have time to reach that point.

 

[xizhimen]

China is the world biggest trader and manufacturer, Russia is the world biggest natural resources supplier, a win win combination, it's potentially very doable.

 

[Jagdflieger]

it's inevitable that China and others are going to create their own money/currency exchange systems and an independent/separate IMF, etc.

Otherwise inflation/currency ridden countries like Indonesia will never make it out of the $ trap.

 

[xizhimen]

Its sort of frightening to contemplate, but the truth of the matter is our currency only has value today because the majority of people who use it believe it will continue to have value tomorrow. There is literally nothing backing it, not even the assurance of the US to provide value for it. In fact, we are devaluing it at a record rate. We have nothing more than a faith-based currency. That wouldn't be such a bad thing if people had faith in the government. By far the majority of people on this Earth do not. Not any more.

The moment the dollar is replaced as the reserve currency will be the moment of our insolvency. We can never hope to pay our debts now, they are simply too big. And a reserve currency based on rare earth elements that are abundant in China and Russia, but not in the US, well that is pretty much game over.

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