As the trade war continues to escalate, China is becoming increasingly active in Iran and is considering retaliating with what has long been described as the country’s ‘nuclear option’.
If there is any further pushback from the US on any of these Chinese projects in Iran, then Beijing will invoke in full force the ‘nuclear option’ of selling all or a significant part of its US$1.4 trillion holding of US Treasury Bills, with a major chunk of the paper due to be sold in September on this basis. This massive holding of these bonds - through which the US finances its economy and is an important factor both in the value of the dollar and therefore in the health of US international companies especially – has been used as a bargaining chip before by China, especially when it feels threatened.
Back in 2007, just before the great financial crisis, a number of senior Chinese figures at various state-run think tanks – through which China often signals its big geopolitical threats – stated that the large-scale selling of this massive Treasury Bill holding would trigger a dollar crash, a huge spike in bond yields, the collapse of the housing market and stock market chaos.
Such a tactic would neatly fit into China’s overall strategy to have the renminbi challenge the US dollar’s status as the key global reserve currency and the prime currency for global energy transactions.
“The long-planned sequencing for this was inclusion in the SDR {Special Drawing Rights] mix, which happened in 2016, increasing use as a trading currency...
Only recently, Leonid Mikhelson, chief executive officer of Russian oil major, Novatek, said that future sales to China denominated in renminbi is under consideration and that US sanctions accelerate the process of Russia trying to switch away from US dollar-centric oil and gas trading and the damage from potential sanctions that go with it. “This has been discussed for a while with Russia’s largest trading partners such as India and China, and even Arab countries are starting to think about it... If they do create difficulties for our Russian banks then all we have to do is replace dollars,” he said. “The trade war between the US and China will only accelerate the process,” he added.
China wants to get away from the dollar system and that is the overall direction of travel,” he concluded.
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