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Wednesday, July 17, 2024

Currency diversification to stabilise the global financial system

Story by Davison Vandira

THE Chinese Yuan continues to gain against the United States dollar on the back of the current de-dollarisation that has seen the international community led by Russia and China looking for alternative trading routes and currencies.

The development, which has been described by local analysts as global currency diversification, is expected to see the Yuan gaining a substantial global market share, while also guaranteeing global financial stability in the long run.

For years, the greenback has dominated the world’s monetary system without a viable alternative and currently, more than 60 percent of foreign exchange reserves held by central banks are in US dollars, while more than 90 percent of global financial transactions involve the US dollar.

However, the ongoing de-dollarisation has seen the global economy adopting other currencies, particularly the Chinese yuan, which has since posted substantial gains against the US dollar and is now valued at 6.8679 up after the latest gain this Sunday.

The situation has further been exacerbated by the US Federal Reserve’s adoption of an interest rate regime.

Already, other global economic superpowers like China, Saudi Arabia, Brazil, Russia and India have started trading in their currencies with the test run being completed when China and French Energy companies traded Liquefied Natural Gas using the Yuan a few days ago.

In this regard, local economic analysts are warming up to the de-dollarisation and diversification of world base currency and expect this development to bring stability to the world financial ecosystem in the long term.

“The current de-dollarisation of the world brings with it several benefits, especially to countries that have got functional and strong currencies as this will liberate them from being held at ransom by Washington’s monetary policy as such stability will be achieved,” said Mr Paison Tazvivinga a development economist.

“We are witnessing a financial paradigm shift which will affect of cause the way business and trade will be conducted but most importantly this move is what the world needs to reduce the dominance and monopoly of the US dollar as every structure that has monopolies is highly inefficient and rigid therefore the competition of currencies will benefit the global economy,” said Mr Kudakwashe Mugova an economic analyst.

Economic analysts are also alive of potential short-term negative effects that the de-dollarisation process will bring to countries like Zimbabwe that have a high dependency on the greenback which calls for further strengthening of the local currency.

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