China was always a keen competitor, an observer eyeing opportunities that would help in the internationalization of its own currency. The Yuan is now standing at a precipice of change, where the currency has gained enough power to challenge the USD. This development can be divided into multiple stages, where visible US economic flaws can be blamed for the Yuan’s supremacy gaining momentum as of late. The constant USD weaponization, sanctions, & tariffs have led the world to rummage for alternatives, with the yuan emerging as the next breakout asset. Has Trump indirectly fueled Yuan’s rally by undermining the US dollar?
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Dollar Down, Yuan Up: The New Currency Dynamics
The US economic era is currently at a precarious stage. Meanwhile, Donald Trump is leaving no stone unturned to levy new tariffs. This, in turn, is causing significant stress on the US dollar. Consequently, with mounting pressure on the Fed to cut rates, the USD is at risk for significant volatility. As a result, this development is perfect for USD alternatives to strengthen, especially the Yuan.
This development compelled China to nurture its own cross-border payment domain called CIPS. This system allows global banks to settle transactions in real time. CIPS has forged connections with Asia, Africa, and the Middle East amid the rising US trade tensions, with Beijing focusing on powering the yuan on a global level.
“As geopolitical tensions escalate. Traditional cross-border payment infrastructure is prone to being politicized. And weaponized as a unilateral sanction tool, undermining the international financial order.” As stated by Pan Gongsheng, governor of the People’s Bank of China, at the Lujiazui Forum.
Trump’s Tariff Orders Are Changing the Current Financial Landscape
With rising trade tensions and the volatility that such changes are ushering in the world is now becoming more open towards following a multipolar currency order. These tensions have played a critical role in deterring investors’ faith in the USD, leaving a large gap in the current financial dynamics. This gap is now filled with currencies like the yuan, which are vying to claim the top spot in the new world economics.
“The situation where a single currency dominates cross-border transactions is changing. After more than a decade of development. China has preliminarily established a yuan cross-border payment network with multiple channels and wide coverage.”
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