Is China trying to take over the world? 

By now you’ve probably seen a bunch of articles and videos with headlines like China just destroyed the US dollar or the US dollar is being dethroned. But what’s going on and how will it affect you and your money?

So last Wednesday, Brazil and China signed an agreement that will allow them to trade in their own currencies without using the US dollar as an intermediary.

Simply put, Brazil can now do business with China using Brazilian Reals without converting them to US dollars first. And vice versa China can conduct trade with Brazil using the Yuan. 

Now, this is a very big deal because, for the last 80 or so years, the US dollar has been the main global reserve currency, meaning it has been the go-to currency for conducting trade worldwide.

When a couple of hundred countries are trading goods and services around the world, it helps to have one universal currency that has a relatively predictable value to conduct transactions.  Or else countries run the risk of getting paid in a currency that is difficult to exchange or whose value fluctuates constantly.  For example, the Jamaican dollar is only valuable to people who want to buy things in Jamaica.  And since Jamaica is a small country that doesn’t produce a whole lot, there are not many people globally who want Jamaican dollars.

Now since the end of World War two, the US dollar has been that good ole reliable currency that the world counts on. So when countries go to pay for goods and services from another country, they pay in USD. And the receiving country is glad to accept because they know the USD will hold its value. 

Now, it’s no secret that China’s fast-growing economy and global influence have been a… concern for the US. China is the world’s second-largest economy and has been slowly but surely trying to snatch the top spot from the United States. 

Now, this latest deal with Brazil is seen as a threat to the US dollar because Brazil is the sixth largest economy in the world.  Brazil did around US$150 billion in trade with China last year. Now the United States and the US dollar will be cut completely out of those transactions. 

This is rough news for the US because not only does it increase China’s influence in the global economy but it also undermines the dollar’s position as the top reserve currency. 

So, what does this mean for the US dollar? Is it being dethroned as the global reserve currency? Should we all go out and get Chinese Yuan?

Well, the truth is, global reserve currencies change throughout time as a country’s influence and economy change.

For 100 years leading up to 1944, the British Pound Sterling was considered the world’s main currency. Now it’s the US dollar and Euro. So things change and at some point, the USD’s status could change, and this could be just the tip of the iceberg.