No, it would be disastrous for the dollar hegemony.

Let’s break this down. First, the consequences of dollar loans to the debtor countries:

The point of external debt denominated in dollar is to keep the countries subjugated to the American monetary imperialism. If you’re a developing country that has high amount of dollar debt, there is no way that you can ever repay them. Argentina is never going to be able to repay its dollar debt, only debt cancellation and/or a jubilee can wipe out that debt.

When you’re indebted in dollar, you will have to earn dollars to repay them. That means exporting your goods and services (produced by the hard workers of your country) to buyers willing to accept the dollar. Now, because the net US dollar asset can only be “printed” by the US government (through the Federal Reserve), that means the US is the only country that can reap the net benefit of the dollar. Every other country can only store up their dollar reserves by earning them. When you go far up the chain (or trace the history further back enough), their dollars (including the ones that they lend out) had to have come from the US (most likely by exporting goods/services to the US).

So, instead of prioritizing a national economy that benefits your own citizens, you now instead have an economic policy that prioritizes export. More than that, you now have to compete with every other country selling the same goods/services as the ones you are producing, and that means a pressure on lowering the costs (pay your workers less, force overtime etc.) and depreciating your own currency to make the price attractive enough for US consumers (you get less in return, which makes import more expensive).

Next, such broad economic policy changes often result in the loss of economic sovereignty of the debtor country, especially in energy and food. In addition to importing fuel in dollar at a depreciated exchange rate, other conditions such as loans from World Bank explicitly dictate that your national agricultural plan to produce export crops, instead of building food self-sustainability, and so you have to end up importing food to feed your own people as well. A loss of ability to import fuel and food would be disastrous for the country, as we saw in Sri Lanka and Egypt not too long ago.

Going further, taking loans denominated in a foreign currency means that you have now placed certain public assets/utilities as collaterals. If you fail to repay, you have to privatize and sell these public utilities to foreign creditors, which allow their further encroachment on the national economy. Before long, you’ll find those foreign holders looting national industries and stripping them bare, while you are left saddled in more debt as productivity plunges.

Even more, failure of repayment means you have effectively defaulted, and the consequence is a loss of “trustworthiness” (e.g. downgrade of credit rating). You’ll find less foreign investors, currency exchange rate devaluation, more expensive/worse terms when taking out loans/trade deals, all of which which make the economy suffers even worse and the further the inability to obtain dollars to import fuel and food.

That’s how dollar hegemony works. It’s not so much about “petrodollar” that some people like to think is the only way the dollar gains its dominance. No, the weaponized dollar is far more pervasive and sinister than it appears on the surface. If you have to do anything that deals with global financial institutions (even something as ubiquitous as SWIFT), you can’t escape the dollar. It is an endless spiral that perpetually subjugates your economy to the global hegemon.

The US doesn’t care about being repaid in a currency they can print at any moment. The US cares about exerting its dominance over debtor countries whose only ability to earn this currency is at the complete mercy of the US. As long as the Global South needs the dollar to survive, America will continue to get free lunch.

A mass debt cancellation is the only way to escape this fate for most debtor countries.

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Now, let’s discuss the consequences to China:

As mentioned before, the only reason China is able to give out dollar loan is because they have amassed a huge reserve by exporting goods/services to the US (through the hard work of cheap Chinese labor) for decades.

First, China is a net exporter country, which means that its economy is structured in such a way that heavily relies on export revenues, and as a net exporter (running a trade surplus with the US), you always end up with more dollars than you can spend.

The question is what are you going to do with those surplus dollars? They can’t purchase important/critical industries in the US, the dollar itself is meaningless for their domestic economy (Chinese citizens use yuan in their everyday transaction). It really is just a pile of junk papers and the only place left to store them is the US treasuries, which gives out like 1-2% of interest every year.

This is where the Belt and Road Initiatives (BRI) came from. If you can lend out the dollar to other developing countries to build infrastructures, it can be a net gain for the Chinese economy. You can keep Chinese labor employed, Chinese companies get new contracts from overseas, the massive concrete production that was ramped up in the wake of the 2009 recession will now find new uses as domestic demand dampens. It’s one way of keeping China’s economy going.

Most importantly, China, while looking to internationalize yuan, is very reluctant to do so because they want to remain as a net exporter country. They want people to use the yuan to import Chinese products, they don’t want you to store yuan as a savings/reserves. They want you to use them so Chinese manufacturers can expand and keeping their workers employed.

However, that comes at a significant price. Because those BRI countries have taken loans in dollar, they will now have to repay their debt by earning dollar. This goes back to what I have wrote in the first part, with all the negative consequences to the debtor countries.

(I will not go into details but I should point out that BRI loans can be separated into two types: infrastructure loans (mostly in dollar) and rescue loans (mostly in yuan). There has been a shift towards yuan in recent years because countries found themselves unable to repay so instead of cancelling them, China simply shifts the burden by lending out rescue loans (in yuan) to keep those economies afloat. This doesn’t lessen their debt in dollar, it simply provides a temporary relief to the countries in crisis. To keep it short, debt cancellation is the only way out for most of the debtor countries).

The riskiest part is that China has effectively dollarized those countries when lending out the BRI loans in dollar. This allows the US to have a disproportionate amount of power over those countries, and, if the US plays its cards correctly, will be able to “exploit” the development of these BRI countries as a replacement of China as a manufacturing base, the country it ultimately seeks to decouple. So, cancelling dollar debt might seem like a loss for Chinese creditors, but it is actually a blessing in disguise for China if you look at the long term.

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Finally, we talk about the US and the dollar hegemony itself:

If you have followed the arguments this far, then it becomes abundantly clear that the dollar hegemony derives its control over the Global South largely through debt. If there is a mass debt cancellation and/or global debt jubilee program that frees up much of the Global South from their dollar debt, and in conjunction with an alternative financial system (such as a BRICS-led financial system) coming into place that fundamentally rewrites the global rules of international finance, then those countries, now free of their debt, will be able to jump on to the new system with relative ease. This will free them ultimately from the collapsing weight of the US empire, like what is bound to happen to Europe, the first to sacrifice itself for the empire.