Preface

The value of a country's currency, to some extent, actually represents the strength of that country. For example, in the United States, the dollar remains the "big brother" among world currencies. However, as the U.S. economy continues to collapse, the payment share of the dollar plummeted to 49% in August, while the euro rose to 21%. So, what about our renminbi?

Definition and Historical Changes of Currency Share

Looking back at history, the dollar was once the undisputed "big brother." After World War II, the proportion of dollars in global foreign exchange reserves was as high as more than 70%. At that time, the dollar was like the "universal language" in international trade, and no one could do without it. However, the world is constantly changing, just as the ancients said, "The waves behind push the waves ahead, and the waves ahead die on the beach."

In recent years, the global currency pattern has been quietly changing. The proportion of dollars has fallen from a peak of about 70% to the current 49%. This is not a small fluctuation, but a real "cliff-like decline." Why is this happening? This must start with the changes in the global economic pattern.

With the rise of emerging market countries, especially the rapid development of China's economy, the global economic center is moving eastward. This is like a marathon, where the United States is still running in front, but the runners behind are catching up. Another factor that cannot be ignored is the continuous trade deficit and fiscal deficit of the United States. This is like a person who is always overdrawing a credit card, which will sooner or later affect the credit rating. Similarly, these deficits are also slowly eroding the international community's confidence in the dollar.The changes are not limited to the US dollar alone; the euro and the renminbi are also playing increasingly important roles in this grand currency "play," especially the renminbi, which has been truly "impressive" in recent years.

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It has not only successfully entered the ranks of the top five global payment currencies but is also continuously expanding its "circle of friends." So, in the middle of August, which of the changes in the US dollar, the euro, and the renminbi is the real winner?

From the hegemonic position to recent changes

The latest SWIFT data shows that the share of the US dollar in global payments has dropped to 49.07%. Although it has increased by 2% compared to last month, it is already at a historical low.

So, what has led to the decline in the status of the US dollar?

The first and foremost issue is the United States' national debt problem, which has skyrocketed from $400 billion in 1971 to $35 trillion in 2024. The growth rate of US national debt is even faster than the speed at which our hairlines recede!

In addition to this, some of the United States' actions in international affairs have also made other countries wary, such as the Western freezing of Russia's foreign exchange reserves during the Russo-Ukrainian conflict.

This move has frightened other countries, making them think: What if we have a dispute with the United States one day, would we also face the same fate? As a result, many countries have begun to consider reducing their dependence on the US dollar.

Furthermore, the widespread adoption of floating exchange rate systems has also weakened the demand for foreign exchange reserves to some extent.In the past, countries needed to hoard a large amount of US dollars to maintain a fixed exchange rate. Now that exchange rates can float freely, this demand is not as strong. However, we cannot underestimate the resilience of the US dollar, after all, it is still the most widely used currency in the world, and changing a deeply rooted system is not something that can be achieved overnight.

Although the US dollar faces challenges, it is still difficult to replace it in the short term. So, how should the status of the euro be defined in comparison?

A product of European economic integration, the latest SWIFT data shows that the euro's share in global payments has reached 21.58%. Although it has decreased by about 1% compared to last month, it still firmly holds the position of the world's second-largest payment currency.

What are the reasons for the increase in the euro's share? This is naturally inseparable from the overall recovery of the EU economy. The recovery of the European economy has enhanced international investors' confidence in the euro and increased the demand for euro assets.

On the other hand, the European Central Bank has adopted proactive monetary policies, stabilizing the euro exchange rate. A stable exchange rate has increased the attractiveness of the euro, making more countries and enterprises willing to hold and use the euro.

Global investors have increased the allocation of euro assets to diversify risks, which is like not putting all eggs in one basket. The euro has become an important choice for diversifying the risks associated with the US dollar.Taking a comprehensive view, the rise of the euro has not only changed the global monetary landscape but also provided valuable experience for economic integration in other regions. Its success proves that as long as there are common goals and a firm determination, even different countries can join hands to create miracles.

Next, let's look at how the renminbi, as an emerging force, has performed in this "grand drama" of currencies. Can it replicate the success of the euro or even surpass it to become the second-largest currency in the world?

The Emerging Force on the Rise

According to the latest SWIFT data, the renminbi's share of global payment currencies has reached 4.69%, firmly holding the fourth place. Although there is still a significant gap compared to the US dollar and the euro, it has surpassed the Japanese yen to become the largest international payment currency in Asia.

In November 2023, the renminbi surpassed the yen to become the fourth most active payment currency globally, causing quite a stir in the international financial circle, much like a dark horse suddenly breaking into the leading group.

What's more eye-catching is that China has signed bilateral local currency swap agreements with more than 40 countries and regions, with a total amount exceeding 4 trillion yuan.

In addition, the renminbi has also shown strong momentum in trade settlement. Taking Sino-Russian trade as an example, the trade volume between the two countries reached 240 billion US dollars in 2023, most of which was settled in renminbi and rubles.

So, what has driven the rapid rise of the renminbi?In fact, the sustained growth of China's economy has provided a solid foundation for the internationalization of the renminbi. Moreover, China's active promotion of the "Belt and Road" initiative has expanded the scope of the renminbi's use in international trade and investment.

It can be seen that it is not impossible for the renminbi to replace the euro in the future. We are now daring to think about it, but how long this time period will be, we will wait and see.

Conclusion

The future global monetary system is likely to be more diversified, which is not only conducive to risk dispersion but also provides more choices for the stable development of the world economy.

Let us look forward to the arrival of a more fair, reasonable, and inclusive international financial order.