China: financial victory without military intervention

China’s currency just overtook the once almighty yen. SWIFT, the international payment system, must now use the yuan that has become the 4^th biggest currency after the dollar, the euro and the Swiss franc. Long considered to be speculative, the “renminbi” seems to be undergoing a full transformation, with such volumes of transactions making it attractive to alternative investors in search of refuge values. In fact, while the torments suffered by the rouble and the Russian economy are causing major tremors to shake financial markets, the yuan’s stability at this time has proven to be quite revealing.

This monetary resilience of China’s has certainly done the trick for the country’s authorities since it has concentrated its efforts on encouraging and pushing for more and more international business transactions to be made in yuan for over 20 years now. Its currency’s recognition now seems to be established. Very ambitiously, China is in fact aiming to transcend SWIFT – from which Russia has just been ostracised – so as to be no longer dependent on this network that is controlled by the West, and to avoid one day suffering the systematic demolition of its economy, like Russia has. This is why for many years it has been working tirelessly to install and improve its own concurrent international payment system for the renminbi – Cross-Border Interbank Payments System (CIPS) – that now has no less than 1,200 associate institutions across 100 countries, and whose volume of transactions has increased by nearly 25% in 2 years, reaching roughly 8 trillion dollars. The goal is to end America and Europe’s absolute domination over the means of payments – that is vital for any economy – and wherever SWIFT holds most sway, with it boasting over 11,000 members across the globe.

Russia’s woes therefore represent an opportunity for China, which is gradually giving its consumers more access to credit and debit cards issued by Chinese banks, at the same time that Visa, Mastercard and American Express have suspended their operations in Russia. The economic integration of these two nations is proving to be a fundamental shift that, in reality, started in 2014 after the invasion of Crimea that marked the beginning of the two countries’ combined efforts to actively reduce the dollar’s role in their bilateral trade. Today, while the dollar’s role has decreased by no less than 50% in the trade between these two nations, financial agreements have also been signed between their respective central banks in an obvious attempt to extricate themselves from their dependence on the West. The sanctions recently imposed on Russia and the clear example of their severity are already making disenfranchised countries like Iran or Venezuela seriously take stock, and in the short-term will send them running full pelt into the arms of China, its banking system, and its CIPS network.  

To do this, their central banks are moving towards holding a significant portion of their reserves in yuan, like Russia whose war chest is 15% yuan. It goes without saying that China is profiting from its predominant position to trade with, work with, and fund countries that are under embargo, like Iran and North Korea, without having to worry at all about hypothetical sanctions against it that will never take shape, because the US will never overstep this red line with a country that will soon become the biggest economic power in the world. The message from Beijing is therefore clear: China will support Russia until the very end, and will thereby provide a certain level of material comfort to any nation that is put to the sword by the USA.

The global financial system now keeps turning thanks only to the American dollar that remains the essential fuel of the engine of prosperity for every economy in the world and all of the world’s trade. Extraordinary sanctions, some of which are destroying literally a whole country, unprecedented confiscation of a central bank’s reserves, unilateral exclusion of this same central bank from the Bank for International Settlements that is however meant to be the central bank of central banks: are all factors that challenge the trust and confidence in this system for many countries that are panicked by its transformation into a terrible weapon of financial retaliation, and even annihilation. Meanwhile, China is laughing behind our backs because the country is becoming more and more attractive while the US and the West mercilessly abuse the financial system and the dollar by using it as a lethal weapon.