In its brazen quest to become a global power, China, led by the Chinese Communist Party (CCP), wants to challenge every established international institution. And it seeks to offer a Sino-centric alternative to the same. The attack, thereby, is not on the institution per se, but on the very rule of international law.
The latest in this series is a purported campaign for "de-dollarization" — or challenging "domination" of the United States dollar (USD) in the world economy. And, perhaps introduce a new common conversion currency — with China's official currency, Yuan renminbi (RMB) leading the race, unsurprisingly.
The US dollar has been the world's reserve currency for global trade since the end of World War II, and the establishment of the Bretton Woods system following the 1944 Bretton Woods Agreement. Under this system, the dollar was pegged (fixed exchange rate) to gold. Most global currencies are linked to the US dollar, remaining so almost for 80 years now.
Calls for De-Dollarization
In the past year or two, the demand from regional countries and their leaders to begin trading in their respective local currencies or currencies other than the USD has been on the rise. By doing so, they aim to reduce costs, avoid sanctions, and reshape the global financial system.
These countries include South Africa, Brazil, Argentina, and Kenya. Brazilian President Luiz Inácio Lula da Silva, while on a state visit to China, urged nations to trade in local currencies. Consequently, it became well-known that Brazil and China agreed to do away with the USD for bilateral trade. Besides, Argentina too, has begun paying for Chinese imports using the renminbi.
The call for "de-dollarization" from South Africa and Brazil remains a worrisome indicator. It is an indicator of a future BRICS moving towards doing away with the USD. BRICS is a regional grouping that currently represents about 42% of the global population. The five-member BRICS grouping becoming an 11-nation bloc, in all likelihood, shall render it taking shape more like the Shanghai Cooperation Organization (SCO). It will be Sino-centric and Sino-driven.
De-Dollarization Does Not Mean Self-Reliance
In another Indo-Pacific region, Africa, the campaign against the "domination" of the USD is being vocally raised by the President of Kenya, William Ruto. He aims to reduce Africa's reliance on the USD and reduce costs and intermediary institutions. Urging all African leaders to move away from the USD for intra-African trade, Ruto advocates the Pan-African Payments and Settlement System (PAPSS). The system was launched in 2022 by the African Export-Import Bank and the African Continental Free Trade Area. Further, the call for "de-dollarization" from Kenya in favor of PAPSS to facilitate trading within the continent has received strong endorsement from the African Union and central banks.
Even if African Union countries decide to reduce or eliminate dollar dependence, the departure, does not, in any way, signal a new era of self-reliance for Africa. It only paves the way for the sliding entry of the Chinese renminbi. This will allow China to begin asserting control over Africa's financial transactions, and complicate its economic sovereignty far more.
There are arguments that Kenya's stance on currency independence reflects a broader narrative of Africa "taking control of its economic destiny." However, the motivations underlying China's engagement in Africa have generated multiple controversies with headlines such as "China in Africa: Investment or Exploitation?"
China's Growing Foothold in Africa
It is not yet clear which currency shall replace the US dollar. However, the RMB of course is among the frontrunners given China's prominent political and economic involvement in many African nations. According to International Monetary Fund (IMF) 2022 data, 58.36% of the reported global forex reserves in the world were in USD, and a minimal 2.69% was in RMB. At such a time, African nations need to rethink their developing approach towards the USD.
More importantly, the connection between economic engagement and political alignment is clearly visible in the case of African Union nations and China. In the past two decades, African countries' voting alignment index with the US has dropped about 8%. This establishes China's adversarial motives behind its economic investments across Africa. Any ambitious proposal aiming to redefine how the continent conducts its trade needs to bear in mind the consequences of allowing China to meddle beyond a point, individually, and regionally.
A Trail of Destruction
The discontent over China's interference in Africa's internal affairs is evident. In the case of South Africa, as per the Pew Research Center survey, only 45% of South Africans held a favorable opinion of China's role in the world. Meanwhile, a majority 53% of South Africans viewed the United States as a more constructive force in international affairs.
From South Asia, Africa, and South America to the Pacific Islands nations, China's predatory geoeconomics and geopolitics have damaged many developing, and underdeveloped countries. In many of these cases, to an extent that their road to recovery would end up taking decades.
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Author: Dr Monika Chansoria
Dr Monika Chansoria is a Senior Fellow at The Japan Institute of International Affairs in Tokyo and the author of five books on Asian security. The views expressed here are those of the author and do not reflect the views of any organization with which the author is affiliated. Follow her column, "All Politics is Global" on JAPAN Forward, and on X (formerly Twitter).