China China will trade with other countries in local currencies
I share my views about the next stage in de-dollarization, i.e. countries with trade with each other using their own currencies instead of the USD.

Several oil producers already agreed to sell oil to China in Chinese yuan (CNY). They can keep the CNY and use them to buy products from China in CNY. If they have excess CNY, they can invest them in China stocks or deposits in China banks and earn a market rate of interest.

An importing country, say X, can buy products from China and pay them in CNY (if they have this currency) or in their local currency, say CX. China can use CX to pay for imports from X or invest the CX in a bank in X and earn interest.

If X runs a deficit or has a high rate of inflation, it will have to pay a high rate of interest to offset against the depreciation of CX and give a positive return after inflation.

If China or C uses USD for their trade, they have to pay a fee to the US banks (which makes a huge profit from the trade and also the exchange rate). It is better to bypass the USD and the US banks.

I see a world where countries will have to trade with local currencies, rather than with the USD.

The USD will lose its status as the currency for international trade and reserves. This will happen quite quickly.

Tan Kin Lian

 

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