"De-Dollarization": China Intensifies Attacks on the U.S. Dollar System

Weakening the U.S. dollar as the global reserve currency is a key element in China's strategy to replace the United States as the global hegemon. The conflict between the rival great powers is thus increasingly being played out through the international monetary and financial system. "China knows that control of the U.S. dollar system gives the United States massive advantages. The dollar is a global power factor for the U.S.
a global power factor and is therefore being targeted by China," says Dr. Heinz-Werner Rapp, founder and head of the FERI Cognitive Finance Institute, in a recent analysis of China's "de-dollarization" strategy.

Weakening the U.S. dollar as the global reserve currency is a key element in China's strategy to replace the United States as the global hegemon. The conflict between the rival great powers is thus increasingly being played out through the international monetary and financial system. "China knows that control of the U.S. dollar system gives the United States massive advantages. The dollar is a global power factor for the U.S.
a global power factor and is therefore being targeted by China," says Dr. Heinz-Werner Rapp, founder and head of the FERI Cognitive Finance Institute, in a recent analysis of China's "de-dollarization" strategy.

China leads alliance against U.S. dollar 

China sees targeted attacks against the U.S. currency as an important lever to undermine the global dominance of the United States. For this reason, China is systematically - and at different levels - pushing for a weakening of the U.S. dollar system. At the same time, China wants to protect its own sphere of interest from the possible use of the U.S. dollar as a sanctions weapon, he said. "As long as much of its energy, commodity and trade flows are conducted within the U.S. dollar system, China will never have full sovereignty over its economic sphere. A strategy of 'de-dollarization' is therefore of utmost interest to the Chinese leadership," Rapp explains.
Accordingly, China is strengthening strategic alliances with the Gulf region and other countries of the "Global South." There, he says, China not only offers extensive economic cooperation, but also specifically enables transactions outside the U.S. dollar system. "China is not only the driving force behind the expansion of the BRICS group, but is also pushing alternative settlement currencies there to compete with the U.S. dollar. So the addition of new BRICS members, including major energy exporters such as Iran, Saudi Arabia and the United Arab Emirates (UAE), will prospectively intensify China-led attacks against the U.S. dollar," Rapp warns.

The downside of the dollar privilege

However, a replacement of the U.S. dollar by the Chinese yuan is unlikely for the time being. The still indispensable role of the U.S. dollar as a global reserve currency and massive network effects in the U.S. dollar system would clearly counteract this. However, risks for the U.S. dollar also lie in the U.S.A. itself: "The dollar privilege tempts the U.S.A. into the mistaken belief that unrestrained government debt can be continued forever. However, a lax approach to government finances triggers a loss of confidence and promotes an erosion of the U.S. dollar system from within," says Rapp. Another danger, he said, is the growing willingness of the U.S. to use U.S. dollar sanctions to effectively sideline significant parts of the world financial system. This potential "dollar weapon" is creating global unrest and fostering a trend toward decoupling from the U.S. dollar, he said. Because of these dynamic factors, exacerbated by China's targeted attacks, structural risks in the U.S. dollar system were increasing. Investors and asset holders should therefore keep a very close eye on further developments.

The analysis "China's Attack on the US Dollar - Measures, Motives and Potential Risks for the Western Financial System" has been published by the FERI Cognitive Finance Institute as "Cognitive Comment" and can be found in the download section of this page.