The dominance of the US dollar in the international monetary system has bestowed enormous benefits upon the United StatesHowever, many believe it is time to dismantle this dollar hegemonyAs the US has been raising interest rates for the past two years, the expectations for rate cuts have reached a critical pointIn contrast, China's foreign exchange reserves have remained above $3 trillion, showing a notable upward trend instead of a decline, indicating robust resilience amidst economic fluctuations.

The current moment poses significant dangers for the US economyThe power to raise interest rates seems nearly exhausted, allies no longer follow suit, and even investment mogul Warren Buffett has opted to withdrawMeanwhile, the Chinese yuan has not only stabilized but also emerged as the world’s fourth most actively traded currency.

Notably, as of now, the price of offshore yuan has skyrocketed, even surpassing that of the onshore yuan—a rather unusual occurrence

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Currently, the yuan-to-dollar exchange rate stands at about 7.1, with forecasts suggesting a potential appreciation in the range of 7% to 12% by the end of next year.

Economically speaking, the exchange rate between the dollar and the yuan is primarily dictated by the interest rate differential between the US and ChinaTo put it simply, if the same amount of money earns an interest rate of 2% in China and 5% in the US, savvy investors are naturally inclined to deposit their money in dollar-denominated assets for better returns.

However, maintaining such high interest rates places significant pressure on the US economyThe debt burden on small and medium-sized enterprises in America is rising, and the banking sector is experiencing tremors of uncertaintyIt ultimately comes down to which entities can withstand the pressure.

The duality of dollar rate hikes is evident; while enhancing the dollar's value attracts capital to the US, it simultaneously reduces liquidity in the global supply chain

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Moreover, an increase in the dollar's value leads to a decrease in the yuan exchange rate, strengthening China's export capabilities, as a weaker yuan means lower prices for Chinese goods relative to the dollar.

Nevertheless, it is crucial to understand that the Federal Reserve cannot perpetually raise interest ratesThe current economic scenario hinges on the need for interest rate cuts rather than hikes.

Regarding the Fed's reluctance to lower rates, it is primarily due to the fear of capital flight from the US if rates decreaseAiming to draw these investments back, the Fed opts to increase rates instead, taking care to avoid being the first major economy to cut rates before others, like the European Central Bank or the Bank of Japan.

A nation relying on its treasury bonds as the global currency benchmark must continuously provide currency reserves to sustain international trade growth

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However, bond issuance cannot expand indefinitely due to limited fiscal revenues.

High interest rates act as a double-edged swordWhile they signify rapid growth in the dollar's volume, they also indicate that current demand is being restrainedThe dollar's value today is upheld by these high rates, but should they be adjusted downwards in a couple of years, a natural decline in value would followConversely, sustained high rates would inflate national debt and obligations.

The Federal Reserve’s practice of "printing money" as a stopgap measure has become increasingly evident, revealing significant vulnerabilities in the systemIf there were alternatives to consider, the Fed would not rely solely on this approach.

No entity can truly achieve "infinity." Every inhabitant of this planet is aware of that principle, and the Federal Reserve is no exception.

On the geopolitical front, the impact of American financial sanctions has proven less lethal than anticipated

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Over the past year, although comprehensive sanctions against Russia have undeniably affected its economy, the GDP contraction of 2% in 2022 fell short of forecasts, which feared a decline of around 15%.

When the U.S excluded Russia from the SWIFT system—a decision made as a part of sweeping sanctions—their export revenue, which was close to $500 billion in 2021, shifted from dollar settlements to domestic currenciesThis transition oversaturated the dollar liquidity in the marketIt also opened the door for countries to engage in foreign trade transactions using their local currencies.

The severance of Russia’s access to the SWIFT payment system inflicted a blow not only on the dollar's payment and settlement system but also raised questions about the overall security surrounding the dollar.

Opponents may argue that without a viable alternative currency, the global financial landscape could descend into chaos

The dollar is the currency of choice for many nations—not through coercion by the US but because of its recognized liquidity and acceptance in global markets.

However, it is crucial to acknowledge that numerous countries feel exploited by what some deem the 'dollar imperialism.' This system is perceived as fundamentally unjust, with more than half of over 200 nations experiencing varying degrees of financial subjugation under this dollar-centric regime.

It is a commonly understood fact that the dollar system is employed by most countries in international settlements and trade, especially in oil transactions, establishing a robust "petrodollar" system.

To simplify the situation, within the existing dollar framework, countries effectively function as extensions of US interests, allowing America to siphon wealth from others

As a result, many are eager to see the collapse of this dollar-centric paradigm.

As I assert that the dollar system is approaching its breaking point, it's noteworthy that by July 2024, 11 countries will have joined the BRICS alliance, representing a population share of 50% worldwide.

Historically, before the US dollar’s dominance, the British pound held a similar positionHowever, the UK’s adherence to the gold standard led to significant depletion of its reserves during the world wars, resulting in the eventual abandonment of that systemFollowing the Bretton Woods Conference, the dollar’s preeminence was solidified as the US utilized a gold standard initially to foster trust in its currency.

America's current actions seem poorly reasoned, akin to playing dodgeball in a battlefield, prioritizing short-term crisis management over long-term strategic exit strategies.

Using currency swaps, local currency transactions, and diversifying away from US Treasuries can effectively diminish the expansion of dollar-denominated debt