Milan - More and more countries are accepting yuans to settle accounts with China, marking the end of the US dollar domination as a reserve currency. For economist Maurizio d'Orlando, "this development represents a strategic threat to the US-led economic system," and could lead to political or even military confrontations.
China has kept its currency under tight control, holding its value deliberately low in order to promote its exports. In the past few years, Beijing has allowed some fluctuation. The issue of its revaluation has been a major issue in US-Chinese relations, including in the most recent talks.
In order to get out from under the dollar's shadow and avoid the impact of its debacle, China has signed deals with other countries to use the yuan, first with Hong Kong, then Argentina, Belarus, Uzbekistan, Tajikistan, Mongolia, the United Arab Emirates and Iceland.
Now China's central bank wants to strike a similar arrangement with the US Federal Reserve, the Bank of Japan and the European Central Bank.
European companies however have already been using the yuan for some time. The latest report from the Society Worldwide Interbank Financial Telecommunication (SWIT) shows that yuan-clearing transactions in Europe are trailing behind only Hong Kong, the primary pilot offshore yuan settlement district designated by Beijing.
Excluding the Hong Kong market, payments made in the yuan by European enterprises accounted for 47 per cent of the global market, more than the market share of 41 per cent held by the Asia-Pacific region.
As a sign of what is happening, the total global transaction amounts settled in March increased by 8.6 per cent% compared to February, but those settled in the Chinese currency registered a much higher growth rate of 13.2 per cent.
Similarly, at the end of March, Australia signed a currency swap deal with China's central bank worth A$ 30 billion. This deal could help the yuan become China's primary trade currency in the next two years, Australian experts said.
The yuan will be used widely as a key currency to settle international commodity transactions in 10 to 20 years, said Jean-Francois Lambert, managing director and global chief of commodity and structured trade finance at HSBC.
However, some experts are concerned. For economist Maurizio d'Orlando, "The growing use of the yuan in international trade transactions will lead sooner or later to the collapse of the existing financial system based on the US dollar as reserve currency. This development could be accelerated by political events and eventual conflicts. In case of conflict, the collapse of the system could be hastened until a sudden crash."
In any case, the current trend represents a threat to the existing US-dominated economic system.
For d'Orlando, "The decision to go along this path could inexorably lead to economic, political or even military conflict."