Western countries and their allies had previously imposed harsh sanctions on Russia, aimed at cutting it off from global financial markets. They accused Moscow of launching an “invasion” in Ukraine after Russia started a special operation to demilitarise and “de-Nazify” the country on 24 February.
According to Vivekanand Jayakumar, an associate professor of economics at the University of Tampa in Florida, the weaponization of dollar-based global banking could offer long-term strategic and economic risks to the US currency’s current dominating position.
He pointed out that the dollar-based global financial system, which has already been hampered by the United States’ spending policies and trade deficits, is now threatened by a China-Russia economic and strategic collaboration. Jayakumar stated that China has always aimed to replace the dollar as the world’s reserve currency, and now since Western nations may cut a country’s banks off SWIFT and slap them with sanctions, Beijing has even more motive to push the renminbi and digital yuan abroad.
“Recent moves by the West to weaponize dollar-based international finance may yet provide the necessary spur for China to speed up measures to reduce its reliance on the US dollar and create an alternate global financial payments system”, Jayakumar wrote.
As per Sputniknews, in the event that the situation surrounding Taiwan – its breakaway province – intensifies, the professor believes Beijing will become warier of the existing financial system and want to reduce its exposure to it.
Beijing’s attempt to spread the digital yuan and create alternative payment systems, according to Jayakumar, is part of China’s plan to address these possible concerns. According to the professor, China’s Belt-and-Road Initiative will extend the acceptance of the Chinese yuan. He sees Chinese President Xi Jinping’s “inward-looking policies” and unwillingness to completely open its markets as the only barrier on this path (and the only hope for the US to maintain the dollar’s dominance).
“Any genuine moves to increase the global acceptance of the renminbi/digital yuan will require China to fully open its capital markets to foreigners. But such a step may not be in accordance with Xi’s dual-circulation economic strategy,” Jayakumar wrote.
The expansion of the Fed’s balance sheet, rising public debt, and a “sizeable trade deficit” with China, according to the economist, have already undermined the dollar’s position.
The United States, the European Union, the United Kingdom, Canada, and a number of allies have slapped Russia with rounds of sanctions aimed at cutting it off from global financial markets for what they perceive as an “invasion of Ukraine.” China has stated that it will not support the sanctions.
On the 24th of February, Russia initiated a special operation in Ukraine, instructing its soldiers to demilitarise and de-Nazify the country. After Ukraine failed to follow the Minsk agreements and threatened to revoke its non-nuclear status, President Vladimir Putin declared Russia had no choice but to act.
On March 3, the two sides met in Belarus for the second round of discussions in an attempt to reach agreements on a ceasefire and bring the operation to an end. Moscow says that Russia requires security guarantees and that its demands for Ukraine are simple.
