The fate of the US dollar, CBDCs, and the relationship with the Chinese yuan
The Fate of the U.S. Dollar, CBDC, and the Renminbi
The End of the Petrodollar?
The backdrop for the U.S. dollar maintaining its status as the reserve currency is the 1974 “Washington–Riyadh”密約 (secret accord). Saudi Arabia agreed to price oil in dollars, and the United States guaranteed its security, establishing the “petrodollar system.” However, in 2024 this agreement is said to have ended, raising the possibility that Saudi Arabia may stop accepting dollars.
CBDC and the Renminbi Movements
Saudi Arabia is participating in China-led CBDC project “Project mBridge.” This project aims to create a multi-CBDC platform enabling cross-border real-time payments and settlements, seeking a new international settlement system that does not rely on the U.S. dollar. As a result, the share of oil transactions settled in dollars could decline.
Impact of the Renminbi
In recent years, China has been selling off large amounts of U.S. Treasuries and reducing its holdings of dollar assets. Furthermore, by building a new settlement system centered on the Renminbi, China aims to diminish the influence of the U.S. dollar.
As the status of the U.S. dollar as the reserve currency wobbles, attention is on how CBDCs and the Renminbi will affect the international economy.
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