UMVA has learned that the narrative surrounding the decline of the US dollar has been greatly exaggerated, particularly with regards to Russia and Iran's supposed abandonment of the dollar in favor of the Chinese yuan.
Despite claims that these two heavily sanctioned countries have turned to the yuan as an alternative, the reality is that they were forced into this position due to sanctions that locked them out of the dollar system. Neither country chose to adopt the yuan; they had no alternative.
Russia's use of the yuan for trade settlements with China, for instance, was not a deliberate choice but a necessity born out of sanctions. The country's bilateral settlements with China were split between rubles and yuan, with no exclusive agreement on the use of the yuan.
Moreover, Russia's preference for dollars remains unchanged. In fact, President Putin imposed strict capital controls to increase US dollar reserves in the central bank, and the country has openly stated its desire to return to dollar-based transactions once sanctions are lifted.
Iran's situation is similar. Prior to a recent military campaign, Iran was exporting oil to China in exchange for yuan, not by choice but due to sanctions that blocked dollar transactions. However, with the collapse of its petroleum exports, the country's currency preferences have become academic.
The Russian ruble's alleged recovery is also being overstated. The official exchange rate is artificially sustained through state intervention, including mandatory foreign-currency conversion requirements and capital controls. Even with these measures, the exchange rate is largely theoretical, and the ruble remains a currency with limited international value.
Another myth surrounding the yuan is that it is gold-backed. However, this claim is entirely false. The yuan is a fiat currency, and there is no convertibility mechanism linking it to gold. The petroyuan futures contract, launched in 2018, has failed to displace the dollar in oil markets, and the yuan's share of global foreign exchange reserves remains low.
The broader de-dollarization thesis also fails on structural grounds. The euro, which was once considered a credible challenger to the dollar, has peaked at around 28% of global reserves and has been declining ever since. The yuan, which is not freely convertible, faces an even steeper climb.
Any currency seeking reserve status must be freely tradable, but China maintains strict capital controls, making it difficult for the yuan to gain traction. Additionally, there is no viable alternative payment infrastructure to SWIFT, and no country accumulates reserves in a currency it cannot freely liquidate.
BRICS summits have produced years of de-dollarization rhetoric but no concrete mechanism. The dollar's role as the global pricing standard persists, even when it is not the direct medium of exchange. Commodity markets, oil, gold, and grain are all priced in dollars globally, and this pricing function is the deepest form of dollar dominance.
Finally, the argument that the dollar is doomed due to US national debt is misguided. US government debt is not a vulnerability undermining the dollar; it is the mechanism through which dollar dominance operates. The entire world depends on US Treasury debt for financial stability, and countries like China and Japan hold massive amounts of US Treasuries.
