On average, central bank foreign exchange managers plan to hold about 5.8% of reserves in yuan within the next 10 years. That would represent a sharp increase from the 2.9% level of global reserve yuan holdings reported by the International Monetary Fund in late June.
Meanwhile, the average share of US dollar holdings dropped to 63% as of June 2022, according to the survey. That was down from 69% in the previous year.
According to Business Insider, the response to the invasion of Ukraine “has increased talk about a ‘multipolar’ world, in which the US is no longer the overwhelmingly dominant force.
There is some speculation that the weaponization of the dollar to punish Russia for the invasion of Ukraine has motivated some countries to diversify away from the dollar. Less exposure to the greenback means less exposure to diplomatic and economic pressure from Washington DC.
Declining confidence in the dollar started long before recent events in Ukraine. The Federal Reserve printed trillions of dollars out of thin air in response to COVID-19. This devalued the dollar as evidenced by the surge in prices over the last year. This was the predictable result of creating money out of thin air and handing it out to spend. More money chasing the same amount (or with governments shutting down economies fewer) goods and services will always lead to a general rise in prices.
The only reason the US can get away with this policy to the extent that it does is its role as the world reserve currency. There is a built-in global demand for dollars that helps absorb the money printing. But what happens if that demand drops? What happens if China and other countries decide they don’t want to hold a currency that is losing value every day?
How did you go broke?
Slowly then all at once
Hemmingway the sun also rises
Get ready for hyperinflation, slowly then all at once
The currency is the key. The US only has a few options. And none are good. WW3 or total collapse. Probably both.
We will all be standing in line for our bag of rice, courtesy of the CCP.