The strength and weakness of currencies has gripped the world’s economies for the past 80 years. Global trade is dependent on exchange rate volatility. This is a major cause of economic and financial volatility throughout the world. Europe and the United States have kept the entire world as a slave to forgiveness on the basis of their strong currency. Especially the American currency is the axis of the global economy. In this article, we will focus on how dollar’s monopoly is affecting many countries and why is this war of currencies? What is China’s future plan to compete dollar?
Many countries in the world have tried to defeat the American dollar. However, the United States has ensured the strength and success of the dollar in any case. It is because on the day that the dollar will destroyed, many countries including the United States will be crashed economically. So the countries and the world leaders who tried against the dollar, this country and leaders had to face much.
The 20th Century Development and its Effects
In 1930, the global recession, in the 70s global economic pressure, the collapse of the Plaza Accord in 1985, the crisis of the dollar, Chinese currency, and euro currency became an apple of the wind on the economy all over the world. The importance of the dollar is also very high because New York has to be used for payments in the global clearing house and all transactions in the world are kept in the hands of the United States. On the basis of technology, America is aware of every transaction in the world. If two neighboring countries want to trade with each other, they have to use US channel for payment.
The global one, the United Nations, including the International Monetary Fund (IMF), is all financial management and directly and indirectly in the hands of the United States. Many such events in the world in which attempts were made to eliminate the strength of the dollar, resulting in losses to the same countries.
Hong Kong, Singapore, Taiwan, South Korea, Manwah, Venice, Malaysia, Thailand, and the Philippines made impressive growth in the 1990s. Hong Kong and South Korea in particular have done well in trade worth trillions of dollars from around the world. China alone earned four trillion dollars of foreign exchange in a short period of time. Apart from this, all these Asian countries earned about two trillion dollars from the whole world.
Effects and the Emergence of ASEAN:
America and Europe were also badly affected by it. All this situation made these countries very addicted and quickly started to popularize the idea of ASEAN to set up a single currency. They did it to use this currency for trading or countries would use each other’s currency to trade among themselves. The United States soon realized these issues and included several provisions in the ongoing programs of IMF for Malaysia and Indonesia. Mahatir Muhammed faced severe pressure in this regard because he was basically behind making this strategy.
Reaction of the US:
The US brought Taiwan very close instead of imporitng the goods from these countries. It was because Taiwan owes its existence to the Americans in terms of politics and defense. Japan also at one time greatly devalued its currency for selling its products well around the world and made billions. There also, the US transformed Japan’s progress into terrible situation.
Its major reason is that when demand increases for trading in dollars, the US gets profit of $300-400 billions and if demand decreases, it incurs a loss of same amount. Increment in demand makes better situation in the US and consequently makes better situations for jobs in the US. The US keeps focus on its own currency and trading in the global American agreements. Economic sanctions are applied through World Trade Organziation which benefits the US.
In the 21st century
China Currency’s Monopoly:
Since 2005, China’s currency had also strengthened its value around the world. After economy came to a very strong and dynamic stage, China has come across as an global power to ease its currency for global transactions. China signed an agreement with Russia in 2010. In this agreement,the two countries announced that they would jointly use each other’s currency in the world. It means China will import Russian goods in Rubles and Russia will import goods from China in Yuans.
China currency’s monopoly has affected the US economy very badly. In the balance of payments, the United States became badly affected. Moreover, industrial growth in China shook American industry and technology. The US economy has had to endure a severe downturn for years. It was mainly due to the fact that China was rapidly consuming the dollar. This caused the dollar to depreciate because China kept its currency to a constant level due to which the dollar became more expensive.
China’s products were still being manufactured domestically, but in return, it was collecting dollars from the world. At one time, China earned a fortune of one to two billion dollars per da. Then it earned trillions of dollars of labor and worsened the American economy. After that, China started to market its currency to the world on the global forum.
After the pressure of China’s currency, the US dollar became less competitive in the world against the Euro. In 1999, Euro currency was introduced on global scale which got power of 27 countries. The influence of Germany’s power and economy on the world level through its currency mark was so strong that it strengthened the Euro currency. Currently, the Euro has become the second largest currency in the world and the world’s most traded currency is the euro. The United States excluded the United Kingdom from the European Union in order to put a dent in the strength of the United States. However, now the United Kingdom is facing economic crisis.
Aftermath Russia-Ukraine War and China’s Plan:
The currency war is going on in the world. During the pandemic of Covid-19 trade has been affected so badly. However,the US maintained the trend of trading of several goods including vaccine in dollars but the situation has now turned sharply. In the immediate aftermath of the war in Ukraine, Russia has announced that it will sell its gas to countries that would trade in Rubles.
After that, the demand for Rubles increased globally. Now the situation has become more complicated when China offered to all the Gulf countries, especially Saudi Arabia, to give technology and weapons in return. This has emphasized using Chinese currency for trading. As a result, it has been suggested to countries that China is preparing to set up institutions along the lines of the World Bank and Financial Institutions, which will have a share of the currency in which certain countries can use their own currencies and balances. Thus all is very bad for Europe and America. In this currency game, China is now fully prepared to make its currency a market currency.