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What Is All About The “Global Reserve Currency”? Will the visit of Nancy Pelosi raise US-China tension?

Russia and China are aiming their weapons at the US dollar. And as is frequently the case with important news in the West and the United States, nobody appears to notice or even care.

For anyone paying attention, the fact that China and Russia are stepping up their economic cooperation despite ongoing Western sanctions against the former due to its involvement in the Ukraine War should come as no surprise.

In the meanwhile, Russia is also making other efforts to fortify the BRIC alliance, including redirecting commerce to China and India, according to CNN: President Vladimir Putin stated on Wednesday that as the West tries to cut economic connections, Russia is redirecting commerce to “stable international partners” including Brazil, India, China, and South Africa.

These nations worry that inflation will further debase the dollar, which has lost 33 percent of its value versus other major currencies since 2002, and are especially concerned about the United States’ massive debt load.

In his opening video speech to the attendees of the virtual BRICS Summit, Putin stated, “We are actively engaged in realigning our trade flows and foreign economic connections towards dependable international partners, particularly the BRICS nations.”

How Will “Global Reserve Currency” Affect Dollars Economy?

Vladimir Putin, the president of Russia, declared the organization’s plan to create a new global reserve currency during the 14th BRICS meeting in June. BRICS is a global alliance made up of Brazil, Russia, India, China, and South Africa.

The move is probably made to challenge the US dollar’s dominance of the global currency market, a situation that has existed for almost 80 years. Foreign Minister Sergei Lavrov has said that the dollar’s days as the dominant currency are limited. Russian authorities have made no secret of their mistrust of this status quo.

He recently visited Ethiopia and remarked, “Honestly speaking, the reliance on the dollar as the tool supporting the world economy is not very promising.

“More and more nations are switching to utilizing alternative currencies, switching to use national currencies, and this trend will be gaining steam,” he continued.

Even while it still controls most currency reserves and exchanges, the dollar is losing influence. In terms of total amount of exports and imports, the U.S. behind the euro zone and China in international commerce, according to IMF data.

Even if none now looks prepared to dethrone the dollar from its throne, it seems like a good idea to analyze the top alternatives.

When it comes to the dollar, all is not well. There are several causes for both its ascent and decline, just as there are numerous causes for both. Some of them are: 

  • The FED is printing too much money. The value of the currency decreases when the government issues more money than normal since more money is being spent on the same items, therefore boosting their demand. In addition, it causes inflation.

 

  • Trade disputes with powerful economies like China. The US has already incurred substantial losses because of the trade war, and it is not changing soon. In 2019, the trade war affected more than $460 billion worth of goods and increased consumer expenses by $57 billion.

 

  • Changes being made to the currency used as the reserve. Many nations have made an effort to unseat the US Dollar as the world’s reserve currency, with China and Russia leading the charge. China has long been lowering its reliance on the US dollar, and more recently, both China and Russia have been increasing their gold holdings.

Overall, it appears like the US Dollar is now starting to suffer. In addition to facing enormous hurdles in the near term from probable inflation and the trade war, the US may also lose its position as the world’s reserve currency.

Due to their debt and economic policies, if that were to occur, there would be such a massive decline in trust in the US Dollar that the Dollar might very well drop to previously unheard-of levels.

What Is “Reserve Currency”?

To those who are wondering what all the fuss is about now. Reserve Currency: What is it? And, don’t worry, we’ve got you covered on why it’s so crucial to the global economy.

A country’s government, central bank, or other monetary body may hold huge quantities of a reserve currency, which can also refer to a precious metal. It is utilized for taking part in the global economy, such as through investments or cross-border transactions.

Generally speaking, a reserve currency is one that: Can be freely and quickly swapped for other currencies; Has the depth and liquidity to permit for dependable and efficient international transactions; is held in large sums by several monetary authorities and institutions.

Gold and silver were the main reserves up to the middle of the 20th century. Strong foreign currencies make up the majority of reserves in the modern age. The International Monetary Fund has classified many of them as reserve currencies expressly (IMF).

Foreign currency securities, deposits, and loans are examples of reserve currencies as well. There are several factors that advocates the necessity of the Reserve Currency such as :

  • Size of the economy in the nation where that currency is issued.
  • How accessible are its financial markets?
  • Convertibility of Currency.
  • Regardless of whether it serves as a local or global currency peg (An exchange rate that is regulated between a national government’s currency and a foreign currency is known as a currency peg).

So, following this the idea that the US dollar would not be the world’s reserve currency is one of the largest themes currently dominating foreign exchange markets. Cryptocurrency supporters have asserted that the supremacy of the main currencies may be threatened by digital assets like Bitcoin.

In reality, several central banks are looking at the blockchain-based digital currency used for sovereign crypto. For instance, China is apparently creating the digital yuan even though it does not recognize Bitcoin as legal cash.

Nancy Pelosi Visit To Taiwan Has Sparked International Tension

The Chinese government issued warnings and threats in response to U.S. House Speaker Nancy Pelosi’s travel to Taipei, Taiwan, but her San Francisco constituents who are Taiwanese and Chinese Americans are unlikely to be offended.

Pelosi traveled to Taiwan for under 24 hours, meeting with parliamentarians and President Tsai Ing-wen before departing on August 3, 2022. China retaliated with military exercises and threats of further penalties for the US and Taiwan while Pelosi justified her trip by stating that it demonstrates the US’s “commitment to democracy.”

On the morning of Monday, August 1, Nancy Pelosi’s plane landed in Singapore. She outlined the visit of the US congressional delegation: She intends to visit Malaysia, South Korea, and Japan in addition to Singapore. There was no mention of Taiwan, leaving the prospect of a layover in Taipei open.

It was an quite an odd weekend, with experts and geopolitical commentators attempting to forecast an increase in global tension by watching the flight of an American Boeing.

Following rumors of Pelosi’s plans, China’s Foreign Ministry promised last Tuesday that it will take “decisive and severe actions” if the trip goes forward. A torrent of comments from US officials since then have only contributed to the atmosphere of dread.

“If Pelosi goes forward with her visit, the US will undoubtedly be prepared to respond militarily to a potential Chinese military response,” said Shi Yinhong, an international relations professor at China’s Renmin University.

Will Nancy Pelosi’s plane, the US House Speaker, land in Taiwan this week as part of a journey that includes stops in numerous Asian countries?