Dollar-Yuan Battle in the World Trade Network

Abstract

From the Bretton Woods agreement in 1944 till the present day, the US dollar has been the dominant currency in world trade. However, the rise of the Chinese economy has recently led to the emergence of trade transactions in Chinese yuan. Here, we mathematically analyze how the structure of international trade flows would favor a country to trade whether in US dollar or in Chinese yuan. The trade currency preference of a country is modeled as a binary variable with the properties of a spin in an Ising model. The computation of this trade currency preference is based on the world trade network built from the 2010–2020 UN Comtrade data and 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 global international trade. The performed analysis, based on the convergence of the Ising spin interactions, shows that from 2010 to present a transition took place, and the majority of the world countries would now have a preference to trade in Chinese yuan if one only considers the world trade network structure.

Keywords

• international trade
• commercial flows
• Markov chains
• complex networks
• opinion formation model