Dollar fast losing its sheen, and charm

Argentina announced on April 26 that it would stop using the US dollar, and instead use the yuan, to settle payments for imports from China. Russia, Brazil, France and some ASEAN member states have already decided to use the yuan and their respective currencies to settle trade with China. Also, the yuan's share in China's cross-border payments increased to 48 percent in March compared to the dollar's 47 percent.

China is a major trading partner of more than 140 countries and regions and has been the global leader in goods trade for many years. But according to data from the Society for Worldwide Interbank Financial Telecommunication, as of March, the dollar, euro, pound and yen were the top four global currencies, with the yuan being fifth with 2.26 percent of the share of global trade settlement, which does not mirror China's status as the world's largest trading country.

However, the global trend of de-dollarization has created opportunities for the yuan to improve its share in global trade settlement. The United States has weaponized the dollar, using its status as the international reserve currency to control global transactions, resulting in the lack of security for many countries. The ballooning US federal debt, the sharp fluctuations of the dollar and the uncertainties over US interest rates have caused many countries to lose confidence in the dollar.

Once China abandons the dollar, the consequences for the US could be stark. China's exports to developing countries and major market economies already exceed its combined exports to the US, the European Union and Japan, suggesting that a new trade order is emerging, which will have a major impact on the nature of payments and international currency reserves.

If the US were to "decouple" from China, other countries might choose to trade with China using the yuan as exchange currency, contributing to the de-dollarization trend and enhancing China's status in the global trade settlement system.

That's why the US has said it has no intention of "decoupling" from China. But the tide is turning. In the first three months of this year, imports of consumer goods by the US dropped 20.6 percent year-on-year, which is larger than the drop during the COVID-19 pandemic and the 2008 global financial crisis. The US' status in global trade will further weaken if its import of consumer goods continues to decline, which in turn will accelerate the global de-dollarization trend.