New global trade alliances are being established.
Trade settlement is a critical component of global commerce, facilitating the exchange of goods and services between nations. For many years, the US Dollar has been the dominant currency for trade settlement, with many countries using it as a reserve currency. However, in recent years, there has been a shift away from the US Dollar towards other currencies, notably the Chinese Yuan.
The Yuan’s rise as a potential global currency has been fuelled by China’s increasing economic clout and its efforts to internationalise the currency. As a result, more and more countries are beginning to settle trades in Yuan, rather than the US Dollar.
One notable example of this shift is the establishment of the China International Payment System (CIPS), which allows for the settlement of cross-border Yuan transactions. The system provides a more efficient and cost-effective way of settling trades in Yuan, reducing reliance on traditional payment systems such as SWIFT.
Furthermore, new global trade alliances are being established that are not reliant on the US Dollar. For example, the Belt and Road Initiative, China’s ambitious infrastructure development plan, has seen the establishment of new trade corridors that bypass the US Dollar entirely. Countries along these corridors can trade in Yuan, or other local currencies, without the need to convert to the US Dollar.
The European Union (EU) is also exploring the possibility of settling trades in currencies other than the US Dollar. In 2019, the EU launched the Instrument in Support of Trade Exchanges (INSTEX), a special-purpose vehicle designed to facilitate trade between the EU and Iran without using the US Dollar.
The shift away from the US Dollar towards other currencies may have significant implications for the global economy. For example, it may lead to a decrease in demand for US Dollars, which could impact the currency’s value. It could also lead to a reduction in the use of US financial institutions for trade settlement, impacting the US financial sector.
In conclusion, the shift away from the US Dollar towards other currencies, such as the Yuan, is a trend that is likely to continue in the coming years. The rise of new payment systems and global trade alliances that are not reliant on the US Dollar is evidence of this shift. While the full impact of this trend is yet to be seen, it is clear that it has the potential to reshape the global financial landscape.
