And the people’s bank of china have renewed the bilateral currency swapper range saudi arabia is in discussions with china to price some of its oil sales in yuan but as ties with washington continue to be strained beijing and moscow are diversifying china and russia had taken another step
Closer towards dumping the dollar and agreed to trade in their respective national currencies the russian ruble and the chinese yuan hi everybody the us dollar has been the most powerful currency in the world for 80 long years and like we saw in the previous episodes this reserve currency
Status gives the united states such unprecedented power over the world economy that can the economy of any country within a fortnight and because of this power it has even dominated giant players like russia and china but you know what guys this is where china and russia have actually
Come up with a master plan to kill the dollar dominance in the world and if you look at the past 10 years data you will see that it’s actually working out quite well in 1999 usd had 71 market share among the global reserve currencies but
In the past 10 years it has dropped to less than 59 and in the next 10 years if this strategy of china and russia works out we might see the rise of a new reserve currency in the form of chinese yuan so the question is what is this master plan
Of china and russia to kill the dollar dominance in the world how do they plan to dethrone us from the super power status of the world and lastly what are the challenges that china and russia will face in this currency wars of the world this video is brought to you by
Cuckoo fm but more on this at the end of the video to understand this china-russia strategy we first have to understand why is the u.s dollar so so powerful and why does it have almost a monopoly status among the reserve currencies of the world and if you watched our dollar superbar
Episode and if you remember this concept please skip to this timestamp if you don’t here’s a quick and short explanation of the same firstly dollar served as a reserved currency of trust whereby in 1994 u.s said if you have dollars we would exchange its value in
Gold at 35 dollars per ounce so now two countries that may or may not trust each other could do trade with each other without trouble so this way when indonesia got one million dollars from pakistan even if indonesia did not trust pakistan they know for sure that the one
Million dollars that they got could be exchanged for gold with the us so it was definitely worthy otherwise if they do trade with pakistan in pakistani rupees today 10 000 pakistani rupees might be worthy of buying one gram of gold but the next week itself if pakistan prints
More money and declares that 20 000 pakistan rupee will buy you one gram of gold do you realize what would happen the entire value of trade with indonesia would actually collapse moreover if indonesia wants to use pakistani rupees then if other countries do not trust pakistan’s economy then that money again
Could not be used for trade but if the same transaction happened in dollars the united states guaranteed the value of dollars with gold so you could trade with any country with the u.s dollars and be rest assured that it could be used to trade with any other country to buy any other commodity
But but but in 1971 richard nixon came out of nowhere and ended this gold standard where everyone was free to choose any currency to trade the strength of a nation’s currency is based on the strength of that nation’s economy and the american economy is by far the
Strongest in the world i have directed secretary connelly to suspend temporarily the convertibility of the dollar into gold or other reserve assets the effect of this action in other words will be to stabilize the dollar but even then almost all countries stuck to the dollar why because dollar was the only currency
That could buy you oil from the saudis and why is that because in 1945 the u.s president franklin roosevelt made an agreement of the century with the saudi king whereby the u.s guaranteed the security of saudi arabia and in exchange the saudi king agreed to sell oil in u.s
Dollars so if you wanted to buy oil you needed to have us dollars this is the second reason for the dominance of the dollar and that is the power to purchase oil and these two super powers of trust and oil gave the us the third superpower
Through the swift network and how does a swift network work through the us dollars stored in u.s bank accounts so if an indian trader wanted to make a transaction to the sri lankan trader this system would have an indian trader an indian bank an american bank 1
American bank 2 foreign bank and foreign trader the highlight over here being both indian and sri lankan banks will have an account in the american bank where it has its money stored in dollars so if reliance wants to import minerals worth one crore rupees from sri lanka
They would give the indian bank one crore indian rupees and ask them to pay the same amount in dollars to the sri lankan traders account so now that indian bank has one crew rupees in its indian account it would send a message to its dollar account in america to send
One crore worth of dollars to the sri lankan bank’s dollar account in the us in this case assuming 80 rupees to the dollar to be exchange rate 125 000 would be transferred from the indian account in the us to the sri lankan account in the us and now that the sri lankan bank
Has 125 000 dollars in the u.s account it would pay the sri lankan trader the equivalent of 125 000 from its account in sri lanka this is how the swift network works and just like india and sri lankan banks today more than 200 countries and 10 000 banks trade with
The u.s dollars and have their forex reserves with the american banks and the catch we hear is that if a country has 100 billion dollars in forex and spends only 30 billion dollars in import and export they would have 70 billion dollars in surplus right so you know
What just like we avoid keeping a lot of savings and invest our money in stocks these countries invest their excess foreign reserves in u.s treasury bonds and just like our government bonds this is a mega bond whereby countries are lending billions of excess dollars to the u.s and expect a return after maturity
And this is where the unfair advantage of the u.s dollar comes in as of january 2022 while japan had 1.3 trillion dollars in u.s securities china holds 1.06 trillion dollars and uk held 608 billion dollars in u.s treasury bonds and in total the u.s held 7 trillion by foreign and international investors as
Of september 2021. this is so much money that it’s more than the gdp of france india and russia combined so in simple words the us dollar has three superpowers trust for trade power to buy oil and lastly it has all the excess forex reserves invested in its own
Economy with seven trillion dollars in bonds by the way guys these excess dollars are called as petro dollars and this is where both russia and china have a problem and like we saw in the previous episodes china is extremely annoyed at the us for supporting taiwan and russia is already the most
Sanctioned country in the world so now russia is not able to use its dollar accounts in the u.s to do trade and at the same time most of the russian companies have also been removed from the swift network so with two superpowers being bullied by one big
Uncle sam both of them got pissed and joined hands to take down the mighty united states of america itself and this is where china and russia started their game plan so the question is how can china and russia together kill the dominance of the dollar and what exactly is their strategy well the
First thing we need to understand is that leverage is one of the most powerful tools in geopolitics in this case russia is one of the largest oil and gas producers in the world so although saudi and other countries were selling oil and gas in dollars russia punished its unfriendly countries by
Asking them to buy russian oil in rubles so by default most of the european countries had to buy rubell in spite of they hating putin for it which means what in the payment network diagram instead of u.s bank having dollar reserves all the unfriendly countries that bought oil from russia now had to
Keep their money in russian central bank so just like dollar reserves held the u.s economy the ruble reserves are expected to compromise for the damage to the russian economy which means just like petro dollar we are seeing the rise of petrol ruble and if you look at russia’s dollar reserves
They have been preparing to get rid of the dollar since 2014 itself and if you see this graph the us treasuries have gone down from 150 billion dollars in 2013 to just 3.98 billion dollars as of 2021 this is the leverage that russia has over europe similarly china has its leverage with
The belt and road initiative countries and if you remember from our bri episode china’s belt and down initiative is a three trillion dollar project whereby the chinese have given out over generous loans to countries all across the world and you know what under the bri initiative in total there are 165
Countries in the world who owe a collective debt of 385 billion dollars to china and many of these countries have taken so much debt from china that they cannot afford to pay it back to china and we saw this very very clearly with both pakistan and sri lanka right
And this is where china’s strategic move comes in and now that china has a leverage over these countries experts say that china would now ask these countries to take and pay back loans in yuan and in exchange china could incentivize the scheme by giving them a one percent discount on their interest
Now do you realize if pakistan owes 24.7 billion dollars in debt to china considering its economic crisis right now a one percent discount on a 24.7 billion dollars in debt is a big big deal for pakistan in fact since the inception of the bri initiative china
Has already issued 14 of all its loans in its own currency without depending on the dollar and guess what in 2018 the central bank of pakistan had already agreed to conduct their bilateral trade with china in yuan and even other countries like myanmar cambodia and russia are doing the same now
On top of that china is now the largest trade partner with 25 bri participating countries so again the leverage of trade for china is very very strong so you see with the combination of both trade and debt china could pressurize these countries to use yuan over the dollar so
This way over time china could build the strings of 165 nations and could drastically increase the circulation of yuan now the question over here is all these countries are mostly poor countries right so how would china and russia get rich countries like england and south korea to skip the dollar
Well firstly russia is strongly supporting china and has already turned the chinese yuan into the reserve currency so this is a major major move and as far as other countries are concerned they have something called bilateral currency swap agreement and this is something that even india is pursuing very very strategically with
Its ally countries so the question is what is the bilateral currency swap agreement and how does it actually work in international trade as usual let’s try to understand this using a story let’s say china and uk sign a bilateral currency swap agreement of 5 years for a value of one million
Dollars what this means is that china will sell one million dollars worth of yuan to uk and uk will sell one million dollars worth of pawns to china so after conversion china will give 6.842 million yuan to uk and uk will give china eight forty seven thousand two fifty pounds
And they will agree upon the exchange rate to be eight point zero seven so for five years chinese central bank can sell these pounds and get us dollars or it can lend these funds to domestic bank and companies to settle their trade similarly the bank of england can do the
Same with yuan so now if an english businessman wants to buy one million euro worth of goods from china if he went by the conventional means what would he have to do he would have to pay in pounds to the english bank which will then convert the sum to dollars then
Transfer the dollars to the u.s bank account of china and then the chinese bank will transfer the converted sum of yuan to the chinese businessman this will incur both a lot of time and a lot of cost but now the english businessman would simply borrow 1 million yuan from the
Bank of england and directly pay the chinese bank account in england and as soon as this money is transferred in the chinese bank account in england the chinese bank in china would transfer 1 million yuan to the chinese businessman and the same thing could be done vice versa when a chinese businessman wants
To buy something from uk so if you see two big players can now do international trade without depending on the us dollar this is how the currency swap agreement works and after five years both the central banks of uk and china will pay their respective currencies back at the
Agreed exchange rate of 8.07 so this way both countries get three major advantages number one both countries can eliminate their exchange risk number two both countries can use this currency to exchange it for dollars if needed and thirdly businesses in both countries can carry out trade more economically so the
Business relationship between both the countries gets better and better with time and last and most importantly the dependency on u.s dollar decreases by a large large extent and guess what beijing has signed more than 3 trillion years worth of bilateral currency swap deals with more than 40 countries across the world and this
Includes 400 billion yuan each with hong kong and south korea 350 billion yuan each with bank of england and the european central bank 300 billion yuan with singapore and 150 billion yuan with russia and cherry on the cake since china is the world’s largest manufacturer with almost 20 percent of the entire world’s
Manufacturing happening in china they could further leverage this in order to push the companies to pay in yuan instead of the u.s dollars and guess what now saudi arabia is considering selling oil in yuan which means if saudi arabia starts selling oil in yuan a lot of
Countries would rush to buy yuan and again like we saw in the case with excess forex being invested in u.s bonds the excess yuan would then be invested in chinese bonds making the chinese economy more and more powerful this is how china and russia are slowly building the currency strategies to overthrow the
Reserve currency thrown from the u.s dollar so this strategy looks pretty clean and straightforward right now does this mean that yuan is going to overthrow the dollar well not really and this brings me to the last part of the episode and that are the challenges that yuan is going to
Face in this currency war against the dollar but before we move on i want to quickly thank our partners of this episode and that is cuckoo fm coco fm is india’s leading audio learning platform with over 1000 plus hours of content library with over 4.5 plus rating and a
Huge library of non-fiction content here you can explore a plethora of high grade content for both business and geopolitics in your own regional language so if you’re deeply interested in the rise of china you must check out the audio show called the rise of china and for business my favorite book
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Description and download the coco fm app now moving on the first challenge that both china and russia are going to face is their notorious reputation in the world china has a reputation of being notorious for the dead trap diplomacy and taiwan invasion and russia has already been cornered by the west
Secondly china has been devaluing its currency very very frequently in fact the u.s has even accused china for currency manipulation on top of that by now it is pretty clear to the world that china is not as transparent as the us so it’s going to deter the countries from
Actually adopting the yuan over the us dollars and lastly u.s obviously does not like the rise of yuan and the amount of money and military leverage that u.s has it’s not so difficult for them to actually push against the chinese yuan and the key to this is going to be
Something called the digital dollar and it’s war against digital yuan i’ll be making a separate video on this but for now this is information overload so have a look at the study materials and do let me know what you think that’s all from my side for today guys if you learned
Something valuable please make sure to hit the like button in order to make youtuber happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching i will see you in the next one bye bye You
