Author: Sheng Tang Rusong Source WeChat official account: The Shopkeeper’s Dao has been reprinted with authorization
While Americans are still arguing about the debt crisis, the trend of de dollarization in the world is forming.
Russia’s de dollarization naturally goes without saying that the United States has kicked the Russian ruble out of the global settlement system, and Russia’s own holdings of dollars against the global dollar market are almost negligible. As for the EU, in fact, it has basically achieved de dollarization of its own trade. However, the positioning of the euro is interdependent with the United States. To put it bluntly, the United States knows that the US dollar cannot aspire to become the only circulating currency in the world, thus giving the EU, which has a closer relationship with itself, a relatively independent monetary status. In the remaining international basket of currencies, the status of the pound and the euro is similar. Although the pound does not hold a high proportion, for the UK, the corresponding benefits are already sufficient. In a basket of currencies, there are also Japanese yen and Chinese yuan. At present, the RMB ranks third, but it is only 12.28. As for the Japanese yen, as a defeated country with a US military presence, its degree of control by the United States is not to mention.
From the weight proportion of a basket of currencies, we can see that in fact, the Western world still dominates the current international monetary system. As the world’s largest industrial manufacturing country and the second largest consumer market country, the operation of China’s economy is fundamentally inseparable from the main body of the international monetary system. Although China has much stronger independence from the US dollar compared to the European Union, it is impossible for China to break away from the currently operating international monetary system in the short term. Once separated, it means a complete tearing apart of the world. Although we are not afraid of tearing apart, and the world is also developing in the direction of tearing apart, for China, a longer period of time can be exchanged for a broader space. So, the arguments and discussions between China and the United States, as well as China’s decision to increase or decrease US debt, can be judged and understood based on this principle.
The US dollar has been controlling the world for decades and has formed a complete control system. It is obvious that de dollarization cannot be achieved overnight. China’s gradual increase in the proportion of the international monetary market is based on its own interests. The method of standing up in one fell swoop is not suitable for us. But at the same time, we should also realize that the hegemonic position of the US dollar is not a good thing for the world. By adjusting interest rates, the bottomless limit on US bonds has increased, and the US dollar is eroding the interests of other countries in the world like a cancer. Therefore, ultimately diversifying global currencies and depriving the privileged status of the US dollar is both imperative and inevitable. As the most independent currency with certain strength to compete with the US dollar, the Chinese yuan will eventually become a mainstream among the diversified currencies in the world. However, the game of ups and downs is still ongoing, and the game between the two sides will be long-term and intense, but it has not reached the point where I give birth to you or die.
But the trend of de dollarization in this world is becoming increasingly evident, and more and more countries are on the path of de dollarization. Today we will talk about two different countries and regions that have raised the banner of de dollarization, but have adopted different methods. Through their understanding and my interpretation of the RMB currency above, we can see how this trend ultimately evolves, and what the results will be like after the evolution.
Firstly, in Brazil, after winning the Lula election, the most impressive thing they did was to directly raise the banner of de dollarization. His approach is to build a regional currency for Latin American countries, tentatively named Sur, which means the South. That is to say, this is a common currency issued by all countries in South America themselves. This approach is similar to the euro. Because the economies of South American countries are not large enough, their trade exchanges are very intensive. With such a currency that is different from the US dollar, their economic cycle can bypass the control of the US dollar and achieve the goal of not being plundered by the US dollar’s hegemony. Of course, once this regional currency is established and able to stabilize exchange rates, Latin American countries can use this currency to achieve market trade settlement with other countries around the world. This is true for the euro, the Japanese yen, and the Chinese yuan, and even for hedging settlements with the US dollar. In this way, the rise and fall of the US dollar and the adjustment of the Federal Reserve’s interest rates cannot plunder assets in this region. And domestic inflation in the United States cannot smoothly spill over to Latin American countries.
This is Lula’s ambition, but it is clearly very difficult to achieve it. After all, South America has always been regarded by the United States as its backyard, and many assets in South America are controlled by the United States, mostly in US dollars. Without the help of the external world, it is conceivable that the plan of being destroyed by the United States minute by minute would be based solely on the size and strength of South American countries or Brazil. After all, even today, not all South American countries dare to respond to Lula’s call. If Lula’s roadmap lacks a few countries’ response, the success rate of this matter will be much lower and it will be more easily disrupted by the United States.
But it is not just Brazil and its South American region that the world wants to de dollarize. Let’s take a look at how Türkiye at the junction of Asia and Europe does it. Türkiye has always hoped to join the EU, but in recent years, Erdogan has stopped mentioning the topic of joining the EU. On the one hand, he saw through the weakness of European countries; on the other hand, with the change of the international economic and industrial environment, the EU has become less attractive to Türkiye; on the other hand, Europe and the United States actually do not want to see a strong and independent Türkiye; the United States even plans to support the opposition forces in Türkiye to overthrow the strong Erdogan government; Türkiye’s coup in 2016, Since Russia has been able to obtain information in advance and rescue Erdogan, are the European countries, as allies of the United States, unconscious? I’m afraid Erdogan won’t think so. He will definitely believe that even if European countries are not involved in what the United States is doing, they must know and acquiesce. After all, as an extremely important geopolitical country, the impact of Türkiye’s stability and regime change on Europe is conceivable. The reason why Europe remains silent is naturally because it does not like Erdogan’s dominance. A docile Türkiye government serves the common interests of the United States and Europe.
After seeing these clearly, Erdogan did something. As we all know, Erdogan has done something that many people cannot understand in the domestic financial policy in recent years, including economists in Türkiye and the head of Türkiye’s central bank. In order to ensure strong implementation of his financial policies, Erdogan even decided to replace his central bank head. It is precisely because of Erdogan’s strength in financial policy and his lack of understanding by the world that he managed to pass the election on thin ice.
What Erdogan is doing is insisting on not dancing with the US dollar. In the context of the Federal Reserve’s repeated interest rate hikes, most countries in the world have to dance with the US dollar in monetary policy. Because if the US dollar raises interest rates while other countries do not, their US dollar assets will inevitably be transferred to the United States. We have said this many times and it is also a common practice for Americans to plunder global assets through inflation and interest rate hikes. However, other countries, even though they know this is an American trick, have to follow suit. Due to the strong position of the US dollar and the hegemony of the global settlement system, if you do not raise interest rates, it may lead to the depreciation of domestic currencies and loss of dominant ownership of domestic assets. Every time Americans experience economic crises in recent decades, they have used this method to get through them safely and make another profit.
And Erdogan gritted his teeth this time, enduring immense pressure from domestic currency depreciation and insisting on not depreciating. According to Erdogan: “If these US dollar capital cannot contribute to Türkiye, it is a good thing for Türkiye that they have left, although Türkiye will inevitably bear a huge price for this choice.”
Most countries in the world do not have both a strong internal circulation ability and a solid financial firewall like China, so China will have a much larger buffer space to choose when fighting against American inflation spillovers, but Türkiye cannot. It has long been integrated into the US dollar system, and its internal market cannot form a complete internal circulation ability. Therefore, China can choose not to dance with the US dollar, while Türkiye will inevitably suffer from capital outflows and devaluation of its own currency. But Erdogan survived and ultimately won the election.
This is something the United States is very unwilling to see, so they strongly supported opposition candidate Kemal before the election. Kemal also announced long before the election that once he won the election, the first thing to do is to raise interest rates to stabilize the exchange rate of Türkiye lira. But the result was not ideal. Kemal did not win. After Erdogan won the election, he directly announced that one of the important goals of Türkiye’s insistence on not raising interest rates was to de dollarize.
In Türkiye’s view, it does not have the size of China, nor the strength of Russia, nor does it have a regional community like South America and Africa as a backer and buffer. By the way, Africa has also been developing regional currencies recently. Its approach is the same as that of South America. Therefore, its chosen path of de dollarization is bound to be different from the other parties, and it can only achieve its goals by relying on its own efforts and grit its teeth. Of course, once the de dollarization has achieved initial success, Türkiye will certainly cooperate with other parties to achieve the circulation and complementarity of Türkiye lira and other regional currencies. But not at present. In view of the depreciation trend of Türkiye’s lira visible to the naked eye, Türkiye can only support it alone at present.
Whether Erdogan can succeed depends on the strength of other parties and how long the strong position of the US dollar can be maintained. But the path that Erdogan has chosen, he will definitely persevere, at least from the current perspective, Erdogan has no willingness to compromise.
There are many paths to success in this world, and currently everyone is following the path that suits them or the only path they can take. But the goals are all the same, as the South American version of Chen Sheng said, “The world has been suffering for a long time