China vs. The Dollar | Diana Choyleva

Welcome to Bankless, where today we explore the frontier of China's decoupling from the dollar. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. The question today: are we all going to be using the Yuan soon?

We laugh, but that may very well be the case, at least if we're not using crypto. We've explored crypto's role in disrupting the global monetary order before. That's kind of the genesis of the bankless podcast in the first place. But there's another force that's going to have just as much impact on the global monetary order, and some would say even much more, and that is China. So, what does it look like when the world's second largest economy de dollarizes? That process is ongoing now. That's what we explore in today's episode with China expert and economist Diana Shaleva.

And what a ride this was, especially toward the end, when she gives us uh her prediction on the probability of a US versus China hot war over Taiwan, did not make me feel very comfortable.

Crypto is one technology out of a subset of technologies that are coming online this decade, next decade. Cryptography puts power onto the long tail, uh, and many other technologies will also just kind of make us turn into a multipolar world. And this is what China wants, at least according to Diana. China wants to have a multipolar currency that the globe uses, that planet Earth uses. And I think this is especially relevant for us in the crypto industry because we are dealing in the world of uh new money form factors and new monies, uh, but also just technologies at large. So understanding the second largest world power and what its motivations are and what it wants out of the world is just useful for anyone living through this decade. Uh, and especially for our industry, which is also creating technologies to uh, I think definitely push towards that same like multipolar uh kind of conclusion of where things go. So uh there's just an immense amount of information here. I think we're really just scratching the surface of where this goes. Thankfully, uh geopolitics moves in slow motion, at least in comparison to crypto. So we have time to absorb it before it actually happens. Uh, but understanding the destination that China's pushing their sphere of influence is definitely super important for any investor or just global navigator for this decade.

Bankless Nation, very excited to introduce you to Diana Shoilova. She is an analyst and economist specializing in China's economy and its politics. And today we're here to talk about China's plans to decouple from the dollar. And Diana, I think you're the perfect guest to have this conversation with. Welcome to Bankless.

Thank you very much. It's my pleasure to be here.

Well, we're very excited to dive into this topic. It's something we've been exploring around the periphery, and now we're double-clicking it. We're going right into China's plan to uh de-dollarize. And I want to just spend a minute giving you some context for our audience and who you're kind of uh talking to. So I think our audience has put a lot of time into understanding how global reserve currencies rise and how they fall. It's been kind of key to understanding this whole cryptocurrency uh movement that we're working inside of and um and so bullish on. And we understand that um like the world reserve currency asset is kind of a denominator for everything else that that we own. So that's why it's important as well as investors. So uh a few other things we know is we know the world reserve currency status right now belongs to the dollar. The dollar is king, the dollar is dominant. That seems pretty self-evident. We also know that China is a rising power and they might have a different set of preferences. So we don't know what those might be, but we we expect they'll have a different take on the whole situation. And uh, we recently did an episode that this is almost like a sequel of with um a gentleman by the name of Luke uh Grohman. So, and uh he gave us this this this vague idea, this this notion that China is working to dedollarize. He talked about like de dollarizing into gold and other things. So, in today's episode, we're really here to get into the specifics. So, can we just start here with the broadest of context? So, is China really trying to de dollarize? That's how we've titled this episode. But like, how do you know that they're trying to de dollarize? I think you think they are, but but tell us why you think that.

Well, they definitely are, and that may they made that crystal clear at around 2009,

when they started talking about internationalizing the RB.

And at the start, a lot of the discussion was uh sort of surrounded uh or focused on the economic pros and cons of.

Having the world's reserves currency, but even more broadly, of using your own currency for denominating trade and capital flows. But at some point during the discussion, they really equated

the idea of having a great country with a great currency.

So it became a political concept that the rejuvenation of the Chinese nation.

China's rise to global power will be and has to be accompanied with its rise of or the global status of its currency. Now that was sort of put to the side all the issues of pros and cons of denominating trade and capital flows in your own currency or trying to

remove or supplant the dollar as the world's reserve currency,

and made it a political agenda. And it's been featuring in China's sort of regular five year plans since then.

But a few years ago, they changed the strategy. And that was because in the first years, the first 10 years,

they didn't really achieve much success. And a lot of the use of the currency abroad was really very much tied into the expectation of Yuan appreciation.

And once that came out

by around 2014, then of course the use of the currency for trade also.

Started to come down again. So

five or so years ago, China really put its head together and started looking at how it can internationalize the RB.

And the imperatives for doing so

sort of changed over time as well. As you know, the US started

or changed its policy towards China. It started under Donald Trump, but it continued under President Biden.

And the Ukraine-Russia

war

also was another further impetus to

China really

pushing and

making it a priority that they want at the end of it to buy the essential

goods and services they need from abroad in their own currency.

So as the years have gone on, you've uh depicted a story of an increasing like urgency out of China to really make this effort happen. In the grand scheme of things, can you just kind of evaluate how much of a priority is this for China? Like how badly does it really want to have independence and sovereignty from the US dollar? There's many different priorities that I'm sure China has. Like, where does this rank in the grand scheme of things?

Well, we started looking at this in uh great depth about uh three or three and a half years ago, and we published a report in the summer of 2022.

Entitled China's Quest for

Financial Self Reliance, actually, but basically how Beijing plans to decouple from the dollar based global trading and financial system. Now, at that time, that was actually a priority that

was at the very top of the authorities' agenda.

I've just returned from a two-week trip to Beijing and Shanghai, where I had a lot of meetings

ahead of the party plenum, the all important sort of economic focused

party plenum, the so called third plenum that sets out the economic and reform agenda for the next five or ten years. And in my conversations on this trip,

I'm getting a sense that.

Internationalizing the RMB has sort of come down a peg or two in terms of the authority, the priorities of Beijing. And the reason for that, I think, is that their hands are full domestically with

the economic problems and challenges that China is dealing with. And actually, they feel rather safe at this point because they

created the alternative payment infrastructure

that will allow them to decouple from the dollar.

Of course, having your own infrastructure doesn't mean that people and countries, companies will rush to use your own currency, but it gives them the security that

if there is the urgency to do so,

they have sort of the plumbing to make this work. And I think this was

sort of to an extent the result of what they have seen as a response to again the Russia Ukraine war.

And

if you sort of have followed this story, before the war, Russia was really reluctant to

use the RMB. When

Putin went to Beijing and they declared their sort of no limits friendship, there was a gas deal signed at that time and it was denominated and paid for in Euros. And now that Russia is in a more uh inferior position and doesn't have the negotiating power to the same extent with China.

All the trade is being conducted in RB, and it is through China's own payment plumbing system that circumvents entirely the dollar based system. So I think that's also given them a bit of a

comfort that they can progress with their strategy of how they would incentivize the rest of the world to use the RMB, but it's not such a kind of

Top priority. Certainly, that's my most recent impression.

Okay, so it is a top priority generally, but because they have this uh infrastructure now in place, it's not necessarily a burning priority because the disaster scenario for China would be completely being financially sanctioned outside of like the global economy. And if they're using the the US plumbing, Swift, and some of these other, you know, like payment payment uh networks for this, then they could be cut out. Now they can't. So I that makes sense to me. How far along are they in this process, would you say? In this process to um like de dollarize or to gain usage uh as far as a I don't even know what the objective is, maybe. Are they trying to be a dominant world reserve currency? But could you give us some assessment of how far along are they?

At this stage, they're not trying to be a sort of supplant the dollar as the world reserve currency. I mean, very simplistically, what they want to achieve, as I said at the start, is to be able to pay for the goods and services and assets they need from abroad.

In their own currency. By the way, there is also, you know, we have to differentiate between paying in your own currency and pricing in your own currency. They're two slightly different things. For example, the trade in oil is priced in dollars, but you can pay for oil

from Russia, let's say, in uh in Yuan or from, I mean, you know, it's not the same thing.