For Beijing, it’s not so much about replacing the greenback within the current system but creating an entirely separate alternative

By Henry Johnston who worked for over a decade in finance and is a FINRA Series 7 and Series 24 license holder.

Barely a day goes by without a headline about the Chinese yuan gaining further traction in global trade. As de-dollarization gains steam, the currency of the world’s second largest economy has been thrust into the spotlight.

The dollar paradigm assumes any serious currency must be supported by a framework of full financial liberalization and open and deep capital markets. The greenback’s extensive liquidity is also underpinned by massive US deficits – dollars flowing out to the world – making one wonder if the system as we know it could even function if the world’s chief currency didn’t belong to a country with chronic trade deficits.

China has made internationalization of the yuan a stated policy objective – and it has gone some ways toward integration in the global financial system. However, it has resisted the type of liberalization that could significantly elevate its status as a reserve currency.

In recent years, it has become increasingly apparent that China seeks not to carve out for the yuan a bit more room in the current Western-led system – or even dethrone the dollar and install the yuan in its place – but to create ‘from the ground-up’ the financial infrastructure that insures national sovereignty and protection from the vulnerabilities of the increasingly mismanaged dollar-based system. And it hardly needs mentioning that China is far from alone on this path.

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So what does it all add up to? The yuan isn’t so much replacing the dollar as shifting the ground under the dollar’s feet. We’re headed toward something that is just now starting to coalesce. It will be more fragmented and less centralized. There will be more trade in local currencies, more diverse payment and settlement systems – and eventually financial and development institutions. Financial networks will be more closely aligned with trade flows and geopolitical alliances. There will likely be more central bank to central bank networks that cut out Western institutions and the dollar completely.

(Rest of the in-depth piece which goes over the history of China's moves including an apparent shift in policy right after the US slapped first sanctions on Russia over Crimea a decade ago is found through the link. I think it's an interesting history and shows China perhaps did not intend to break up with the west so soon but moves by the US against Russia have shown it that it cannot trust the US at all and it's time to move away at speed from dollar hegemony for their own safety. )

( Unarchived link: https://www.rt.com/business/590794-yuan-dollar-global-dominance/ )