Trade barriers could trigger a cascade from dollar debt to yuan debt

Geopolitical fragmentation means countries earn more money in yuan and less in dollars. This forces them to choose between repaying dollar debt with yuan, defaulting, or switching their debt to yuan.

For decades, the US dollar has been the world's reserve currency, making it easy for countries to borrow in dollars. This paper shows how trade wars and political tensions could quietly unravel that system. As countries earn more yuan, they might start converting their dollar debt to yuan, which then makes it easier for other countries to do the same.