China accelerates the procedure for exiting the dollar

МОСКВА, 18 сентября 2021, Институт РУССТРАТ.

Behind the noisy events related to the US’ withdrawal from Afghanistan and the planned further retreat of America from Central Asia, some news, the importance of which is difficult to overestimate, passed almost unnoticed. China has started to implement steps that clearly indicate an acceleration of Beijing’s strategy to withdraw its economy from the zone of financial dominance of the US dollar. And he does this, trying not to advertise the result too much.

As financial analysts of the Dunday Telegraph found out, the People’s Bank of China has activated the procedure for buying shares of leading British companies. Focusing on the “pillars of the United Kingdom economy” that form its key stock index FTSE100.

The Chinese central bank already holds 1.5% of the shares of BP and Royal Dutch Shell. Moreover, in the latter, China became the fourth holder of category A shares in terms of ownership. Beijing has another 1% in the mobile operator Vodafone and the mining companies BHP and Anglo American.

Conceptually, China has focused on the energy and mining sector of the British economy, whose securities account for 25% and 16% of the “Chinese” investment portfolio in Britain.

At first glance, the news was not particularly remarkable. China has been actively investing in foreign companies for more than a decade. Another thing is that even at the end of the second quarter of 2021, the amount of such investments was only $2 billion, and at the end of the first decade of September, their bar had already reached $17.1 billion. An increase of 8.55 times in just two months.

Is it possible to talk about a random coincidence here? Unlikely. Since the People’s Bank of China is actively buying shares in foreign energy and raw materials companies in Italy, Malaysia and a number of other countries. But, as Bloomberg notes, there are no American shares in the portfolio of the Chinese regulator.

This suggests that the Chinese leadership has begun to withdraw the Chinese economy from the financial space dominated by the US dollar. This conclusion is confirmed by the National bank of China’s order to strengthen the yuan exchange rate, increased on Monday, September 13, 2021, by 69 base points, to 6.4497 yuan per dollar. And this is the second increase in the value of the Chinese currency since June 18, 2021.

In other words, quietly, without making noise, the monetary authorities of the People’s Republic of China activate two interrelated processes. On the one hand, they are releasing resources from dollar-denominated assets, on the other hand, they are making every effort to prevent American money from returning to the Chinese economy. The emerging money supply is “sterilised” inside the “dollar zone” through the acquisition of assets that have the maximum chance to resist in the event of a collapse of the US currency.

No matter what money appears later, and no matter how much it costs, the need of people and markets for energy carriers and raw materials will still remain. This will greatly strengthen the Chinese position during the “global storm” and immediately after it.

Moreover, it should be noted the elegance of such a solution. If “later” the conditional West tries to nationalise “Chinese assets”, this will automatically unleash the roars of Beijing for a similar step at home. But if the losses, for example, among the “British” assets, are only telecom operators or electric grid operators, then in China itself, the Americans will lose, say, all the factories of Apple Corporation, which is one of the key pillars of the American economy. Anyone that is in the current world of the dollar, that is in the future Amero system, or whatever Washington will try to bring to replace it.

A brilliant move. For rapidly rotting American candy wrappers, while the Federal Reserve and the US are stubbornly trying to preserve their solvency, buy up promising assets. And even so that, in addition to purely financial sense, they began to perform the function of insurance against the rash, hysterical actions of “some hotheads”. And the same Britons, in whose hands the dollars are now settling, will pay for the banquet when “everything starts to collapse”.

But the acceleration of the pace of “dollar sterilisation” suggests that there is not much time left before the storm comes.