Dollar-Yuan Battle in the World Trade Network

TL;DR

This paper analyzes how the structure of the global trade network influences countries' preferences for trading in US dollars or Chinese yuan, revealing a shift towards yuan since 2010 based on network modeling.

Contribution

It introduces a mathematical model using Ising spin interactions to determine trade currency preference based on trade network structure.

Findings

Most countries now prefer trading in Chinese yuan based on network analysis.

The model highlights the influence of trade volume and partner importance on currency preference.

A transition towards yuan dominance in global trade structure is observed since 2010.

Abstract

From the Bretton Woods agreement in 1944 till the present day, the US dollar has been the dominant currency in the world trade. However, the rise of the Chinese economy led recently to the emergence of trade transactions in Chinese yuan. Here, we analyze mathematically how the structure of the international trade flows would favor a country to trade whether in US dollar or in Chinese yuan. The computation of the trade currency preference is based on the world trade network built from the 2010-2020 UN Comtrade data. The preference of a country to trade in US dollar or Chinese yuan is determined by two multiplicative factors: the relative weight of trade volume exchanged by the country with its direct trade partners, and the relative weight of its trade partners in the global international trade. The performed analysis, based on Ising spin interactions on the world trade network, shows that, from 2010 to present, a transition took place, and the majority of the world countries would have now a preference to trade in Chinese yuan if one only consider the world trade network structure.