International Tax Panorama

Recently China and France completed its first Yuan-settled LNG trade, signaling the end of using the US Dollar for these energy trades.

China and Brazil have reached a deal to trade in their own currencies, ditching the US dollar as an intermediary,

Russia, China, Iran and Saudi Arabia are moving away from the US Dollar. Russia plans to use Chinese Yuan instead of the U.S. dollar to settle trades with Asia, Africa & Latin America

This trend is called “De-Dollarization” which is happening everywhere

Last Central Banks bought gold at a faster pace than they have in any year since 1987

This signals a desire for countries to back their own currencies with gold rather than the US Dollar

Today, trade is shifting away from the purview of the United States Dollar

But why?

The US is currently $31.4 Trillion in debt. The supply of US Treasuries has constantly been increasing.

This has led to inflation (due to more interest being paid in US Dollars and more US Dollars being added to circulation).

The US takes on debt to pay back its debt.

Rise of Chinese Yuan :

Over the last few years, China has been working to establish more trade deals in Yuan with a goal of:

1) Increasing the importance of Yuan to global markets 

2) Moving away from trading in US Dollars

Background about the US Dollar

The US dollar has been the backbone of the global economy for decades

Several countries even use the US Dollar as an official currency, like El Salvador, Panama, and Ecuador

In 1944, the Bretton Woods Agreement established the US Dollar as the world’s reserve currency

44 countries agreed to a global monetary system that would be underpinned by the US Dollar, which in turn was backed by gold.

That system was done away with in 1971.

Historically, the US dollar has been a safe haven for international investors.  One of the main reasons for the strong demand for US Dollars is that many central banks and financial institutions use it to keep their savings.

In times of crisis, money often flows into the US dollar as investors seek refuge from trouble in other economies.

Will US Dollar be replaced? 

At present US Dollar is still considered one of the most stable currencies, if not the most stable currency in the world.

The Dollar still dominates foreign exchange reserves, but that lead is slowing being chipped away