The origin of a new monetary order: China against the US
From the beginning, the human being has shown himself to be a sociable being, who establishes himself in a community and is capable of progressing and evolving together with other communities.
Coexistence in society has been the essential pillar in the evolution of human beings, progressing to give rise to the countries we know today.
In this progress, the trade has completed a transcendental role to reach the degree of growth y current transformation, and, furthermore, it is within the framework of our daily lives where the central axis of this article, el dinero.
Barter as a “Payment Method”
Before its appearance in paper money, not only did it not exist as such, but different ways were used to trade without the use of what we know as money, of which the most used was the barter.
This method consisted of exchange goods or services in exchange for something in which the other party was interested; That is, if a wool producer needed sugar and a sugar producer needed wool, they reached an agreement to exchange their products, thus creating the perfect barter.
The problem that arose and that had to be solved was that at its roots it had a fundamental defect, not all people produced goods or services that were of interest when making an exchange.
Which posed a great difficulty as the barter was based on the existence of interest on both sides.
Obstacles and Problems
Added to this problem was the use of elements such as corn or salt as a method of exchange.
That is, the use of perishable materials for exchanges was another obstacle to the survival of this method.
The solution was to establish an exchange methodology that used materials that could be preserved and durable, that did not suffer alterations or physical changes, such as the case of salt which, for example, if it comes into contact with water, loses all its value.
Gold and Silver as a Solution
Therefore, the alternative chosen to solve this problem was the choice of the gold and silver, minerals that would function as payment method over a long period of time.
This way of supporting exchanges with durable and unalterable metals allowed those who did not have exactly what was usually demanded in any society to supply their needs, being used by the majority of ancient societies and extending this methodology around the world.
Influence of China and the Foundations of the Current Economy
Interestingly, the the origin of what is known today as modern economy is closely related to one of the protagonists of this analysis, of course, el Asian giant, China.
In the XNUMXth century (beginning its official use at the beginning of the 9th century) takes place creation of one of the bases of the current economy, paper money or banknotes.
Surprising one of the most famous travelers in history.
Marco Polo was amazed by the use of this type of material, in which society put its trust for exchanges or the acquisition of goods and services and, no less important, to replace the heavy bags of coins that cost so much to transport in certain cases.
As a notable fact, the paper money He came to European continent centuries later via Sweden, around the year 1661 , Yet the Iberian Peninsula in the year 1780 The rest is history.
With this context in mind, let's do a short review of the modern history of currencies that are currently in conflict and that will help understand the tense environment between the superpowers that exert international influence, United States and China.
The predominance of Western civilization in recent centuries has not been in vain, having an impact on the way we understand the world at different levels, from economic to social.
Well, in the monetary field it has not been different, since The first official measure regarding the use of gold in the monetary system was taken in England (at year 1819 ), giving rise to the rule that established that The paper money that was printed was backed by the amount of gold in circulation at the time of printing and with a fixed price, with the main consequence of strengthening of the pound sterling around the world, and giving rise to the so-called gold pattern.
Gold Pattern
The gold standard model established by the English was adopted by the US in the year 1879 , taking a step forward in trusting this system and formalizing it in the year 1900 with the establishment of the gold-dollar relationship.
This model survived until World War I., where countries were unable to meet the expenses of the war without printing more paper money than existed in gold reserves, so it was suspended.
Reactivated after the world conflict, the standard was still used but without the characteristic that one ounce of gold would be equivalent to 35 dollars.
Measure adopted from year 1944 with the system Bretton Woods, where the dollar as a currency of global use (due to the weakness of European countries, devastated by circumstances) by establishing themselves as world leaders.
With some modifications, the model continued to be used but also 1971, a momentous year that would mark the trajectory of the dollar worldwide, where he President Nixon would suspend gold convertibility due to various circumstances, from campaign expenses in Vietnam to waste on domestic welfare programs, turning it into a fiat currency[1] and exposing it to the confidence of the world.
Dollar Boom
In 1974,a high deficit and el dollar in a less than idyllic position, the US government decided take a step forward and reach an agreement that would allow the dollar to be placed in a superior position over other currencies, taking advantage of a situation of need for both parties to the agreement and which would be transcendental.
I'm talking about agreement with Saudi Arabia, where the agreed terms passed because The American country would buy the majority of its oil demand from the Middle Eastern country in exchange for the Saudis investing their income from this sale (those classified as petrodollars[2]) in purchase of US debt (state bonds) and ensuring US military protection.
They thus created a demand for debt and dollars.
This agreement was expanded full with OPEC members (organization for world oil production) in 1975. .
The demand for dollars was boosted worldwide, Today, 40% of the total world debt is issued in dollars, in addition to being the most traded currency in the world, with a 88,3% of total.
That the dollar is the most used currency has numerous advantages, but it is necessary to highlight for this scenario an elementary factor in the American strength in the current confrontation, the ability to generate a large amount of debt backed by international trust, a not inconsiderable mattress for possible use in this tense and changing context.
China, great world economic power
On the other side of this coin is the country that gives rise to paper money y that faces the American power and is currently its greatest rival, named as the great asian threat, China. With a average growth of 8-9% of GDP since 1980, China has positioned itself as a world economic power able to sit at the same table as the Americans, thus generating a new international paradigm. It cannot be denied that it has become a economic power, But It does not mean that it is a financial power. Although there is no doubt that seeks to stand up to the dollar and the international monetary system.
With the objective in mind of turning the international table upside down, the Chinese government has established two projects of Dantesque proportions to achieve this: New Silk Road and the Petroyuan[3].
For this analysis, this last point is the really important one, fully involved in the fight against the dollar worldwide.
2017
In 2017 China managed to promote its petroyuan idea with the help of Russia (assuming unprecedented support and a clear declaration of intent towards the Americans), reaching a agreement similar to the American one with the Saudis.
The Russians agreed to make oil purchases with this new currency.
This idea to launch petroyuan has been extended in the Chinese demand for the main countries from which it imports this hydrocarbon, including Iraq, Iran, Angola, among others.
Taking advantage of your international position as the world's largest oil consumer, and given the need for Chinese investment by many countries, the oil-exporting countries have mostly accepted the Chinese requirements to buy oil.
Likewise, These profits in petroyuans can enhance the Chinese government's revenue capacity for subsequent investment in projects such as the Silk Road or in the country itself, thus managing to support its expansion and growth with sufficient force.
Russian acceptance to buy oil with Petroyuan
The novelty of this new currency lies essentially in what was analyzed at the beginning of this analysis, the gold backing of this currency.
The Chinese government has found the remedy to increase investor confidence in this currency: The Chinese currency is less valued in the international market due to the high probability of its fluctuation and depreciation by the Chinese government, the backing of the currency in gold.
This movement has been predicted by several analysts due to the increase in Chinese gold purchases in recent years, at the same time that Russia's purchases followed the same path.
So things, The Chinese government tested the strength of the petroyuan by launching this novelty in the oil futures contract market of the Shanghai Stock Exchange, being a fairly important success and launching a challenge to the dollar, which is the currency that dominates the most important hydrocarbon markets, such as Brent or West Texas Union (WTI).
Furthermore, the Chinese government has begun to persuade Saudi Arabia, the US protégé in the Middle East, to get it to adopt the petroyuan as currency in the purchase and sale of oil and seeking to snatch away the main partner of the US in this region of the world, dealing a severe blow if this were to happen (source: World Gold Council (WGC))
The Chinese Government, seeking to persuade Saudi Arabia to adopt the Petroyuan as currency in the purchase and sale of oil
But, given this situation, Americans cannot be expected to sit idly by and wait for the monetary course to define which currency will be superior.
To foresee how the US government may act, it is necessary to take into account the movements adopted in situations of danger of petrodollars, where Matthew Hatfield clearly states the following:
- “In 2000, Saddam Hussein, the then president of Iraq, announced that Iraq was moving to sell its oil in euros instead of dollars.
- After 11/XNUMX, the United States invaded Iraq, deposed Saddam Hussein, and converted Iraqi oil sales to the U.S. dollar.
- This exact pattern was repeated under Muammar Gaddafi when he attempted to create a unified African currency backed by Libya's gold reserves to sell African oil. Shortly after his announcement, rebels armed by the United States government and its allies overthrew the dictator and his regime. After his death, the idea of African oil being sold in anything other than the dollar quickly faded.
That is why the above events lay the foundation for possible future responses by Americans.
The Chinese government has a long way to go, since the reputation of Chinese control over the yuan means that investors do not trust too much in its possibilities,
Gold-Backed Petroyuan
However, gold-backed petroyuan may be another story, having a projection superior to the yuan and capable of carving out a niche in international markets.
It is early to say that this new move by the Chinese government could be a critical blow to the dollar, but the war behind the scenes has begun and we are seeing the consequences today in various scenarios, from fight in the Middle East between the two powers of the region, Saudi Arabia and IranWhere the one protected by the Americans comes into conflict with one of China's largest trading and oil partners, mostly, Iran.
So this region can be a thermometer that measures the tension between China and the US.
Monetary War Underway
Concluding, the currency war is underway, the fight goes beyond the financial markets and its consequences are found at different levels.
The phenomena that affect the international panorama are multidisciplinary and they have effects in various fields at the same time, for example, a destabilization in the international economy has effects in the field of security and social well-being at the same time.
And, taking into account the geopolitical reconfiguration after the crisis COVID-19,
China can take advantage of the possible weakness of the US, European and global economies in general terms to take a step forward and agree on investments that are governed by the use of the new Chinese currency.
Something for which the US is preparing and plans to manage a fund of more three billion dollars to inject them into the American economy, with the aim of reactivating the economic industry and being able to fight on any battlefield.
China can take advantage of the possible weakness of the US, European and global economies in general terms to take a step forward and agree on investments that are governed by the use of the new Chinese currency.
In the following months we will see the movements made by the superpowers within the framework of this fight for the long-awaited monetary dominance, which can rule the world by taking advantage of the upcoming debts of numerous countries to get out of the economic-financial slump as a result of the COVID-19 crisis. XNUMX and the hard blow it has dealt to the world economy.
[1] That is, it depends on the trust of a society without necessarily being backed by the amount of gold that exists in reserve.
[2] A petrodollar can be defined
like every dollar obtained from the sale of oil.
[3] Yuan obtained from the sale or purchase of oil by China.
For more information:
https://www.nuevatribuna.es/articulo/global/coronavirus-guerra-big-data/20200319115355172305.html
https://sobrecuriosidades.com/2009/10/11/el-origen-del-papel-moneda-o-billete/
https://es.statista.com/estadisticas/607496/divisas-mas-utilizadas-en-transacciones-a-nivel-mundial/
https://knoema.es/atlas/China/Crecimiento-real-del-PIB
https://harvardpolitics.com/world/the-worrisome-deal-china-and-saudi-arabia/
Visualpolitik – Petroyuan, The Chinese strategy to beat the dollar https://youtu.be/NNPkeVEHO_Q
“I have no special talents, but I am deeply curious” – that is what Einstein said and I identify with it.
Graduated in International Relations and master's degree in Diplomacy and Intelligence, as well as an Intelligence Analyst Officer from the Diplomatic School of Spain. He also in International Business. Principal RRYP consultant.
I just want to understand the world around me and continually learn. Dynamic, eager to learn and grateful for being able to carry out analysis on what I like and am so passionate about... I hope to be able to generate the same for readers.
The world is going through a great storm at financial and economic level, changing protrodollars for petroyuans, would be who controls the world power, China wants to displace the dollar by relying on a currency backed by gold (16 tons) supposedly double that of the US, for that it is not enough to have more gold, it needs to have a military power greater than the US, for now it does not have it but it is China's goal. -The US has done many bad things and some are disputed, what would China do if it could be hegemonic in finances and weapons? We must not forget communism, what a failure, but not in China that became capitalist with its own style, we should listen to the Chinese people. For the moment there will be no large-scale military confrontation, but gaining total power would be inevitable.