This Tuesday, June 23, the trade war between the United States and China could soon spread to currencies since the Americans plan to ban Beijing from trading in dollars. Faced with the risk that Washington will remove Beijing from an entire part of the global architecture of payments in US currencies, the Chinese financial regulator wants China to prepare to be cut off from the dollar payment system. The subject is addressed by Benaouda Abdeddaïm in his column in the show Good Morning Business presented by Christophe Jakubyszyn on BFM. 

Despite all the efforts of Russia, China, Iran and other countries to free themselves from their dependence on the US dollar, despite calls from the IMF and other international bodies to develop an alternative world currency to replace the dollar, despite a challenge to the hegemony of the dollar which is increasingly strong (the share of the dollar in the foreign exchange reserves of central banks represented 71.5% at the end of 2001 and 62 % in 2009), the dollar remains the world hyper-currency that it has been for more than fifty years.

According to the latest figures from the international Monetary Fund, the greenback now represents 60.89 % of central bank holdings, its lowest in 20 years. However, even though its share has fallen, this proportion is still out of all proportion to the size of the US economy, which now accounts for only about 20 % of the world economy. e euro is in second place (20 %), far ahead of the Japanese yen (5.7 %) and the pound sterling (4.62 %).

But to really take the measure of the magnitude of the power of the US currency, it should be noted that nearly 87 % of daily transactions in foreign currencies are carried out in US dollars. In the foreign exchange market, the dollar reigns. And since the United States can intervene in dollar transactions (any transaction made in dollars must be cleared on American soil), payment channels are highly dependent on American power, which gives it a lever of control that constitutes a considerable strategic asset: be excluded from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) interbank network, a company owned by the world's major banks, which is intended to remedy the disadvantages of paper flows, whose headquarters are in Belgium but which is essentially controlled from the United States, more than 11,000 financial institutions from 200 countries are connected to it) as is the case of the Iranian central bank and other Iranian bodies, amounts to a financial killing. Washington therefore has the power to cut off access to the international payments system to states that do not submit to its diktat.

China's countermeasures ...

Finding that almost all global transactions go through the U.S. network, Chinese leaders have built their own banking transaction network " CIPS " (Swift's Chinese competitor). They are also accelerating the internationalisation of the national currency, so that it is fully traded on the world foreign exchange markets and the yuan is in a position to compete with the dollar as a global currency. e Bundesbank took the decision in the summer of 2017 that it would henceforth incorporate the yuan into the its foreign exchange reserves, a way of recognizing China's growing power. This was also the case when the IMF decided to include the yuan in the basket of its reserve currencies in the fall of 2016. This is a great symbolic success for the Chinese power, the scope of the gesture being as much technical as political. The Chinese yuan is the 6th most used currency in the world and is increasingly used by financial institutions in international payments.

... but which are not enough

However, while the Middle Kingdom has become the world's second largest economy and the leading industrial power, the yuan constitutes only 1.96 % of central bank assets. The Chinese currency is still marginal in the world system.

A country whose currency is used internationally must have a liquid and large financial market because these criteria reflect the preferences of investors and central banks. And to achieve this goal, it must liberalise and deregulate its financial markets in order to facilitate the mobility of capital flows and make available to lenders and borrowers a wide range of financial instruments.

However, this liberal model is opposed to the Chinese dirigiste model, which is the heir to a long tradition of bureaucratic construction. The Chinese model is that of a market economy run by a strategic developer state at the head of which is the government and the Chinese Communist Party, which sets the major objectives and sets up the institutional frameworks. The management of markets by the government therefore plays a decisive role in this directed capitalism. This dirigiste model that has worked wonders in fulfilling the industrial modernization program can prove to be an insurmountable obstacle when it comes to the internationalization of the yuan. Indeed, the Chinese propensity to intervene in the financial markets, to strictly regulate exchange rates (Beijing does not want a strong yuan to restrain the export machine), to control capital (restrictions on financial movements in or to abroad were put in place after the shock devaluation of the yuan in 2015, which caused capital flight abroad) has the consequence that the Chinese financial market is unattractive for investors.

China's leaders may decide to reduce their interventions, open up their financial market and allow the exchange rate to move according to the market, only this will create new vulnerabilities : the loss of control of its financial flows would mean for Beijing that its exchange rate would become dependent on the decisions of the investors and confidence shocks linked to the economic and financial crises, which would result in a loss of political control and a loss of autonomy that would lead to the constitution of dependency relations with Western financial centres. Being the largest reserve currency is not necessarily a sinecure.

The international configuration presents the Chinese ruling class with a Cornelian dilemma: how to emancipate itself from the dollar without making the Yuan a reserve currency, or if this is not possible, how to make the Yuan a reserve currency without engaging in a policy of liberalization and financial deregulation that would oblige the China to establish asymmetrical relations with transnational markets that would dominate it ? And all this taking into account that even when China's financial markets are sufficiently liberalized and deregulated, there is no guarantee that the yuan will be preferred to the dollar.

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conclusion

The international monetary system seems to be slowly moving towards a somewhat more "oligopolistic" structure in which the dollar would remain dominant but compete with other currencies. However, barring a sudden systemic collapse of the United States, no currency is close to replacing the dollar, transitions are long for the major reserve currencies, the monetary ascent proving much slower than the economic ascent, the replacement of the pound sterling by the dollar took several decades and two world wars, and the dominant role of the dollar today is no longer so much the result of its own qualities as of the absence of credible competitors.