The Creation of the US Dollar and the Possible Risks of China's Economic Rise in the World Order

Since the second half of the 20th century, the US dollar has been the world's reserve currency par excellence, giving it a central role in the global financial system.

However, China's economic rise has sparked discussions about the possible risks and implications of this shift of power in the economic world order. In this article, we will analyze the creation of the US dollar and the risks associated with China's growing influence in the world economy.

1. The Creation of the US Dollar

1.1 Origins and evolution

The creation of the US dollar dates back to the founding of the United States in 1776 and the need to establish a unified national currency. The Continental Congress first issued the "Continental Currency" in 1775, which was replaced by the US dollar after the signing of the United States Constitution in 1787. The dollar was created to facilitate trade and exchange between the states and eliminate dependence on foreign currencies.

1.2 Bretton Woods and the rise of the dollar as the world's reserve currency

After the Second World War, in 1944, representatives from 44 countries met at the Bretton Woods Conference in New Hampshire, USA, to establish a new international monetary system. The aim was to promote exchange rate stability and facilitate international trade and investment. At this meeting, it was decided to fix the exchange rates of currencies against the US dollar, which in turn would be convertible into gold at a fixed rate of US$35 per ounce.

This agreement established the US dollar as the world's main reserve currency, since other currencies were pegged to it and gold was the basis of the system. The dollar became the international medium of exchange and the central banks' main reserve asset.

2. China's Economic Rise

2.1 Economic reforms and growth

Starting in 1978, China began a series of economic reforms under the leadership of Deng Xiaoping, who sought to modernize and liberalize the country's economy. These reforms included opening up the country to foreign trade and investment, creating special economic zones and reforming state-owned enterprises. As a result, China experienced unprecedented economic growth, becoming the second largest economy in the world.

2.2 The internationalization of the yuan

China's growing role in the world economy led the country to seek the internationalization of its currency, the yuan (CNY). The aim was to reduce dependence on the US dollar in international transactions and increase China's influence in the global financial system. Since 2010, the country has promoted the use of the yuan in international trade and investment

signing currency swap agreements with various countries and establishing offshore trading centers for the currency.

In 2016, the yuan was included in the International Monetary Fund's (IMF) basket of currencies that make up the Special Drawing Rights (SDR), which represented recognition of the growing role of the Chinese currency on the global economic stage. However, despite these advances, the yuan is still far from challenging the dollar's dominance as the world's reserve currency.

3. Possible Risks of China's Economic Rise in the World Order

3.1 Challenges to dollar dominance

China's rise as a global economic power and the internationalization of the yuan have raised concerns about the possible risks to the current world economic order, dominated by the US dollar. Some analysts argue that China's growing influence could challenge the dollar's position as the world's reserve currency, which could lead to a restructuring of the global financial system and greater exchange rate instability.

3.2 Economic dependence and geopolitical risks

Another risk associated with China's economic rise is the growing dependence of many countries on the Chinese economy. With China becoming an important trading partner and investor for a large number of nations, there is concern that these countries could become vulnerable to economic shocks originating in China, such as slowdowns in growth or financial crises.

In addition, China's growing economic influence also has geopolitical implications, since the country has used its economic power to promote its political and strategic interests, which can lead to tensions and rivalries with other global powers, such as the United States.

3.3 Environmental and social challenges

China's rapid industrialization and economic growth have also raised concerns about the environmental and social impact of this expansion. Air pollution, the degradation of natural resources and growing social inequalities are issues that China faces in its development, and which can also have global repercussions.

Conclusion

China's economic rise and the internationalization of the yuan pose significant challenges to the current world economic order, dominated by the US dollar. The risks associated with this change include the possible erosion of the dollar's dominance, growing economic dependence and vulnerability to shocks originating in China, as well as geopolitical tensions and environmental and social challenges.

To meet these challenges, it is necessary to promote dialog and cooperation between the main economic powers in order to guarantee the stability and prosperity of the global financial system.