The Case for the Belt and Road’s Alternative Currency Basket

Posted by

Op/Ed by Chris Devonshire-Ellis

Increasing unhappiness in Russia and its allies – including China – over the manner in which Washington has imposed sanctions on various countries and used the US dollar and global trading system as a trade weapon is leading to a partially global re-assessment of the desirability of using the US dollar as a trade currency.

Iran is the latest country to feel the heat as Washington cut the countries banks and other financial institutions from global payment networks such as SWIFT. Russia has been dealing with sanctions now since 2014, and countries such as Turkey and Venezuela have also been badly hit by Washingtons use of the dollar as a trade weapon. China, which is now the world’s biggest exporter and is expected to become the world’s largest economy in the next ten years, is also understandably reluctant to underpin those realities by relying on a current global system, dominated by and controlled by just one nation – its main competitor, the United States.

Consequently there are calls for US dollar trade in China and Russia – the largest of the Belt & Road nations – to either be replaced by a return by to a gold or similar asset backed currency such as oil or gas reserves, or the creation and development of alternative basket of currencies, and including the Euro as a reserve currency.

In terms of global trade, the US controlled financial network system is significantly over leveraged in terms of the United States global trade clout. The US share of global exports is just 14 percent of the global total, yet it essentially controls global payment systems and promotes the use of the dollar, even in markets far closer to Europe. On a visit to Georgia last month, it became apparent that local traders were keen to accept US dollars rather than the local Lari or the Euro, despite the proximity of Georgia to Europe and a mooted political desire to gain EU membership. The black market is awash with US dollars, diminishing confidence in the national currency and pushing aside what could be its replacement – the Euro. The US is actively involved in creating a dependence upon and quasi developing of trust among Georgians with the US dollar instead of the Euro or Ruble.

China, with its global share of exports being 17 percent, and thus larger than that of the United States, has a vested interest in developing an alternative to US dollar denominated settlements and has been actively expanding its Union Pay payment network into global markets. This will take time, however the process is underway. While Union Pay is mainly targeted at Chinese citizens and settled in RMB, there are discussions taking place, most notably with Russia and their Mir Card system, at working out a dual or even multi-currency payment system that would allow users to access payment capabilities from their local accounts via an exchange rate calculated using a basket of currencies including the RMB, Ruble and other currencies such as the Euro. In fact, in GDP terms, it makes a lot of sense to think about incorporating such a system using Asian currencies, as Asia today contributes 60 percent of global GDP.

Taking matters a step further we can identify the currently most globally traded national currencies as used in international settlements, and their specific nations share of global exports and GDP percentage.

The Top Ten Most Traded Currencies Used for International Settlements

Country/Region Currency Percentage of Global GDP* Value of Global Exports (Billions, USD)**
United States US Dollar 15.35 1576
European Union Euro 16.19 1929
Japan Yen 3.88 683
UK Pound 2.27 437
Australia AUS Dollar 0.98 225
Canada Can Dollar 1.37 433
Switzerland Franc 0.40 337
China RMB 18.53 2157
Sweden Krona 0.41 170
New Zealand NZ Dollar 0.14 37
Notes: * 2018 GDP figures based on PPP, statistics from Economy Watch
** 2017 Data CIA World Factbook

Of these, all economies except for China shrank in terms of GDP share over the past two years, while Sweden and New Zealand remained static.

As can be seen, the worlds most traded currencies bear little in common with the respective global picture in terms of actual export volumes or GDP strength. Several now major global economies do not have their currencies featured in terms of being used in global trade settlements, despite the size of their economies. We can examine these, ranked in terms of export volumes and their percentage of global GDP.

Non-Commonly Traded Currencies Ranked by Value of Global Exports

Country/Region Currency Percentage of global GDP* Value of global exports (Billions, US$)**
South Korea Won 1.60 577
Mexico Peso 1.91 407
Singapore Dollar 0.41 373
Russia Ruble 2.96 337
UAE Dirham 0.56 318
Saudi Arabia Riyal 1.41 231
Thailand Baht 0.97 228
Vietnam Dong 0.59 214
India Rupee 7.89 299
Brazil Real 2.47 214
Notes: * 2018 GDP figures based on PPP, statistics from Economy Watch
** 2017 Data CIA World Factbook

There are additional emerging economies that are also now contributing an increasing percentage of global GDP. They are also developing their export markets and their share of global trade will increase. These include:

Non-Commonly Traded Currencies Ranked By Percentage Of Global GDP

Country/Region Currency Percentage of global GDP* Value of global exports (Billions, US$)**
CIS Various, mainly Ruble denominated 4.23 52
Indonesia Rupiah 2.64 169
Turkey Lira 1.40 157
Iran Rial 1.22 92
Nigeria Naira 0.96 41
Egypt Pound 0.94 24
Pakistan Rupee 0.85 22
Argentina Peso 0.81 60
Malaysia Ringgit 0.75 188
Philippines Peso 0.71 63

The above data illustrates that there are numerous candidate nations that could step into a new, alternative basket of currencies. Certainly, proven economies such as South Korea, Singapore, India, and Mexico all offer stability and economic strength in depth, are growing their economies and can afford to take such a step. Other candidates include Saudi Arabia, the UAE, several other ASEAN nations such as Indonesia, Malaysia, Philippines, Thailand, and Vietnam, while nations such as Egypt, Brazil, and Argentina are all emerging fast. Turkey and Iran would both welcome an alternative given the manner in which their economies have been targeted and deliberately damaged by Washington’s policies this year. Russia’s secret trade gem meanwhile is the Commonwealth of Independent States (CIS), whose trade also continues to significantly develop and is predominantly ruble based.

This situation has lead to various alternative solutions to compete with, or even undermine, US dollar denominated trade. One is the call for establishing gold reserves as a support for national currencies as opposed to the debt based system employed to support the US dollar. Both China, Russia and India have been increasing their gold holdings while at the same time divesting themselves of US treasuries. All are investors in the Silk Road Gold Fund and at the same time are the three largest shareholders in the Asian Infrastructure Investment Bank.

This gold issue is significant because China and India are collectively the world’s two biggest producers and consumers of gold. The countries that have signed up to the Belt and Road Initiative also account for more than half of the world’s gold production and 80 percent of the total global gold consumption. While I do not expect gold alone to shift the US dollar position, it will be an embarrassment to the United States when China and Russia announce they collectively hold more gold reserves. Gold is a publicly emotive metal and Beijing and Moscow will renew questions about the stability, strength and resource backing of the US dollar.

Russia has also called for currencies in future to be based upon other alternative real assets, such as oil, gas or other precious commodities. I examined this scenario here where I pointed out that in terms of oil, the United States is not in the top ten of global producers, and has instead been reliant on political involvement to secure and influence supplies and control of known global reserves. The world’s top ten proven oil reserves are in fact held by the following countries:

Nation Reserves (Billions of barrels)
Venezuela 298
Saudi Arabia 268
Canada 173
Iran 156
Iraq 141
Kuwait 104
United Arab Emirates 98
Russia 80
Libya 48
(Source: Global Europe Anticipation Bureau)

Concerning proven natural gas reserves, these are the top ten:

Nation Reserves (Trillion cubic feet)
Russia 1,688*
Iran 1,187
Qatar 885
Turkmenistan 353
United States 334
Saudi Arabia 290
United Arab Emirates 215
Venezuela 195
Nigeria 182
(Source: Hydrocarbons Technology)
*Russia’s share equates to 25% of the total global reserves

This combined wealth poses a significant longer term threat to the position of the US dollar as the dominant marker in global trade. China, however is unlike Russia as it is energy poor, but is nonetheless about to become the worlds largest economy and is a massive customer of other oil and gas producing nations. These simple facts, coupled with the relative decline in share of global GDP by the Western economies currently marked by global currency trades, mean the current state of affairs is unsustainable and that a challenge to the US dollar and the existing global trading system is bound to emerge. To do that takes time, a great deal of political effort, global desire, technological development and concentrated wealth.

In terms of political effort and desire, one only has to look at the oil and gas graphics to understand where political distrust is likely to be felt. The oil producing nations are effectively politically divided between the United States and a combination of China and Russia, whereas in terms of natural gas it is almost all a Moscow influenced play apart from the United States itself.

China too, with both its huge exports, effectively supplying the world with cheap consumer products, wields political global clout. No-one wants to see those supply lines dry up as President Trump has just understood. China also dangles carrots to get the trade deals it wants – it has, and protects a massive consumer market of 1.4 billion people. Add to that equation countries such as India and the ASEAN nations and it becomes clear where future export markets lie: Asia.

In terms of tying all this together, these demographics suggest that a challenge to the US dollar is real. There are enough countries with inherent wealth to support it, and there is the political trade will and the political desire to move away from a US dominated system. Systems are also being put in place, and new technologies such as blockchain, both heavily invested in by China and Russia, will play a significant role in the structuring of an alternative payment system. These two countries are both developing their Union Pay and Mir Card networks throughout Eurasia, and both have been looking at how to implement and regulate digital currencies. The development of the potential Krytoruble has received Ministerial support while Chinese platforms such as WeChat, Ali Pay, and TMall Global are all developing as future global payment systems. Chinese banks recently trialed a blockchain based financial settlement system called Ping’Tai.

What hasn’t been determined is the unit of currency. There has been much made of the internationalization of the RMB; however, in order to provide an alternative to the US dollar and a cross-border payment system, one currency alone will not suffice. Instead I suspect a trading alternative basket will emerge. This will include the Chinese RMB, Russian Ruble, and quite possibly the Indian Rupee. There are other candidates; the Korean Won, Saudi Riyal, Mexican Peso, and a combination of ASEAN currencies would all be attractive. There has also been talk of involving the Euro, although quite how Brussels, with its currently pro-US perspective would view this is debatable.

The answer to the question then of a currency to be used along the Belt and Road is probably this: The development of an alternative basket of currencies, backed by tangible assets rather than debt, supported by the increasing need for trade settlements in Asia, and run on technologies developed in China and Russia. The timescale? Ten years from now.

About Us

Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the practice Chairman. The firm provides advisory services to foreign investors throughout China, Russia, India and the ASEAN nations in addition to Belt & Road Initiative research. Please contact the firm at or visit the practice at



Related Reading:

Major Belt and Road Nations Increasingly Looking at Avoiding the US Dollar

Eurasian Economic Union De-Dollarizes 70 Percent of its 2018 Trade

China’s New Economic Silk Road

This unique and currently only available study into the proposed Silk Road Economic Belt examines the institutional, financial and infrastructure projects that are currently underway and in the planning stage across the entire region. Covering over 60 countries, this book explores the regional reforms, potential problems, opportunities and longer term impact that the Silk Road will have upon Asia, Africa, the Middle East, Europe and the United States.