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China's Strategic Move Against the U.S. Dollar China has opened a new front in its economic rivalry with the United States, this time targeting the U.S. dollar. Chinese banks have reportedly placed significant bets against the American currency, aiming for its devaluation. According to estimates, these financial institutions have funneled more than $100 billion into short positions on the dollar, anticipating a decline that would lead to substantial profits. The mechanics behind China's currency strategy, particularly its use of foreign exchange swaps, involve a form of financial “shorting“ on the U.S. dollar. This approach has allowed Chinese banks to profit from the dollar's fluctuations. Here's how it works: Chinese banks exchange yuan for U.S. dollars in these swaps, essentially locking in an exchange rate. If the dollar depreciates by the time the deal concludes, the American counterpart owes more yuan, which benefits the Chinese bank. This strategy has led to significant activity in the foreign exchange market, with estimates indicating that Chinese state-run banks have built up more than $100 billion in short positions against the dollar. This trend intensified in 2023 and 2024, as banks executed these swaps to stabilize the yuan without draining China's foreign reserves.
