Comparisons of any hot, emerging commodity to “the new oil” are arguably overdone and underbaked. But the catchphrase, both thanks to and in spite of its deceptive simplicity, has stuck.
Earlier this year, Intel’s CEO Pat Gelsinger likened semiconductors to oil. To extend that analogy further: If chips are the new oil, and trade in oil spawned the petrodollar that in turn helped build up the dollar’s dominance, then what’s in store for the petrodollar?
Enter the “chip dollar”...maybe
Wang Jinbin, an economist at China’s Renmin University, reckons we’ll see a new “chip dollar” alongside petrodollars.
“Both the ‘petrodollar’ and the ‘chip dollar’ are manifestations of US hegemony in the core global commodity-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.”
The US still leads the semiconductor industry, dominant
in advanced equipment, design, and software tools, even though its manufacturing base has hollowed out. The recent CHIPS Act seeks to strengthen America’s semiconductor supply chain, while Washington is working to rally East Asian allies into a chip alliance.
To Wang, these developments will reinforce US dollar dominance and hamper Beijing’s bid to internationalize the yuan, while complicating China’s efforts to reduce reliance on advanced foreign chips and chipmaking 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 finance fiction than reality
The most immediate critique of this idea is that oil and semiconductors just aren’t directly comparable, said Zongyuan Zoe Liu, an international political economy fellow at the Council for Foreign Relations.
Oil is a homogeneous commodity, produced with relatively low capital investment relative to the price it fetches, she said. Semiconductors are far more complex products, get more expensive to produce the more advanced they are, and are “founded on the idea of the global division of labor.”
Additionally, China controls critical inputs like silicon for chipmaking. Without these raw materials, there would be no chips—and no “chip dollars.”
Even if the US wanted to leverage its semiconductor prowess to further dollar dominance, that could prove coslty. “The world is bifurcating into an American sphere of influence and a Chinese one, 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 Enodo Economics.
“If the US were to try to enforce the use of the dollar beyond its competitive market advantages within its sphere, this will serve only to alienate its partners,” she added.
Ultimately, the idea of the “chip dollar” is perhaps closer to what the economic historian Adam Tooze calls “FinFi,” or finance fiction: speculative writing that tries to imagine the future of the global financial system.
Look out for the “gas yuan” instead
Rather than a “chip dollar,” an emergent alternative may be what Chinese scholars have dubbed the “gas yuan.”
China is already the world’s top importer of liquified natural gas and the second-largest importer of pipeline gas. Given China’s leverage as a major natural gas consumer, and the relative fragmentation of the global gas markets, “the idea of a natural gas yuan as a regional currency is plausible, but not necessarily on a global scale,” said Liu.
This could eventually yield a fragmented global monetary system, defined by multiple currencies instead of the single dominant dollar.
As Choyleva noted in her recent co-authored report on China’s plans to decouple from the dollar, a multi-currency system is exactly what Beijing envisions—potentially with profound implications for geopolitics.