Dependence on the dollar has long been a thorn in Beijing’s side
As the U.S. wavers under the weight of dire economic, social and health crises, historic measures introduced to stabilize the country have increased general government debt to 130% of gross domestic product. Most of the newly issued government bonds were purchased by the Federal Reserve, which has significantly inflated its balance sheet.
Meanwhile, China’s economy is working again, and general government debt has increased to only about 60% of GDP. The balance sheet of the People’s Bank of China has not grown much either, while Beijing has demonstrated its economic leadership in East Asia by joining the 15-nation Regional Comprehensive Economic Partnership, the biggest trade deal in history.
Has a window of opportunity opened to allow China to finally break dollar hegemony in East Asia?
There are — among other things — historical reasons why the dollar is the international financial system’s leading currency. The dollar was the foundation for the Bretton Woods system established after World War II, serving as an anchor and reserve currency for all central banks participating in the system.