Comparisons of any hot, arguably emerging commodities right down to the “new oil” are overhyped and undercooked. But the slogan, both thanks to and despite its deceptive simplicity, has stuck.
Earlier this year, Intel CEO Pat Gelsinger semiconductors compared to oil. To extend that analogy further: If chips are the new oil and oil trading spawned the petrodollar which in turn helped build dollar dominance, so what lies ahead for the petrodollar?
Enter the “chip dollar” … maybe
Wang Jinbin, an economist at Renmin University in China, reckons that we will see a new “chip dollar” alongside petrodollars.
“Both the ‘petrodollar’ and the ‘chip dollar’ are manifestations of US hegemony in the world’s main commodity and currency relationship,” he wrote. in a recent essay (link in Chinese). “Oil is the representative of basic energy and chips are the representative of high technology.”
Tthe US still leads the semiconductor industry, dominant
on advanced equipment, design and software tools, even though its manufacturing base has been emptied. The recent CHIPS Act It seeks to strengthen the US semiconductor supply chain, while Washington is working to bring together East Asian allies in an alliance of chips.
For Wang, these events will reinforce the dominance of the US dollar and hinder Beijing’s attempt to internationalize the yuanwhile complicating China’s efforts to reduce dependency on foreign advanced chips and chip making machines.
“The main point is to use the [US’s] high-tech monopoly to create supply-side demand for dollars, thus maintaining the dollar system,” he told Quartz.
The “chip dollar” is more financial fiction than reality
The most immediate criticism of this idea is that oil and semiconductors are simply not directly comparable, he said. Zongyuan Zoe LiuInternational Political Economy Fellow at the Council on Foreign Relations.
Oil is a homogeneous commodity, produced with relatively low capital investment relative to the price it fetches, he said. Semiconductors are much more complex products, becoming more expensive to produce the more advanced they are, and are “based on the idea of the global division of labor”.
In addition, China controls critical inputs such as silicon for chip manufacturing. Without these raw materials, there would be no chips and no “chip dollars.”
Even if the US wanted to use its semiconductor prowess to continue dollar dominance, that could be costly. “The world is bifurcating into an American and a Chinese sphere of influence, with the dollar likely to continue to play a key role in the former and the yuan potentially becoming key in the latter,” said Diana Choyleva, chief economist at Enode Economics. .
“If the US were to try to impose the use of the dollar beyond its competitive market advantages within its sphere, this would only serve to alienate its partners,” he added.
Ultimately, the “chip dollar” idea is perhaps closer to what economic historian Adam Tooze calls “FinFi”, or financial fiction: speculative writing that tries to imagine the future of the global financial system.
Look for the “gasoline yuan” instead
Instead of a “chip dollar,” an emerging alternative may be what Chinese academics have dubbed a “gas yuan.”
China is already the main importers in the world of liquefied natural gas and the second largest importer of pipeline gas. Given China’s influence as a major consumer of natural gas and the relative fragmentation of global gas markets, “the idea of a natural gas yuan as a regional currency is plausible, but not necessarily on a global scale,” Liu said.
This could eventually lead to a fragmented global monetary system, defined by multiple currencies rather than the single dominant dollar.
As Choyleva pointed out in her rereport co-authored with one hundred As for China’s plans to decouple from the dollar, a multi-currency system is exactly what Beijing envisions, with potentially profound implications for geopolitics.