Comparisons of any trending, up-and-coming commodity to “the new oil” are, in some people’s opinions, both inaccurate and exaggerated. But the slogan has endured, both as a result of and in spite of the fact that it is deceptively simple.

At the beginning of this year, the Chief Executive Officer of Intel, Pat Gelsinger, compared semiconductors to oil. To take this comparison a step further: if chips are the new oil, and the trade in oil gave birth to the petrodollar, which in turn assisted in the rise of the dollar’s supremacy, then what does the future hold for the petrodollar?

Wang Jinbin, an economist at China’s Renmin University, predicts that a new “chip dollar” will emerge alongside petrodollars in the near future.

In a recent article, he argued that “both the ‘petrodollar’ and the ‘chip dollar’ are expressions of US hegemony in the main global commodity-currency relationship.” “Both the ‘petrodollar’ and the ‘chip dollar’ are manifestations of US hegemony in the core global commodity-currency (link in Chinese). “Oil is the prototypical example of fundamental energy, while chips are the prototypical example of cutting-edge technology.”

Despite the reduction in the size of its manufacturing base, the United States maintains its position as the leader in the semiconductor sector. The country is particularly strong in the areas of sophisticated equipment, design, and software tools. The recently enacted CHIPS Act aims to improve the quality of the semiconductor supply chain in the United States, while the government in Washington is also attempting to bring East Asian allies together to form a chip alliance.

According to Wang, the changes will make the US dollar more more dominant, which will make it more difficult for Beijing to internationalize the yuan and make it more difficult for China to lessen its dependence on technologically superior foreign semiconductors and chipmaking machinery.

He said that the primary objective was to keep the dollar system in place by using the United States’ high-tech monopoly in order to generate a supply-side demand for dollars.

The concept of the “chip dollar” is more myth than fact in the world of finance.

According to Zongyuan Zoe Liu, a fellow in international political economics at the Council on Foreign Relations, the most urgent argument against this approach is that oil and semiconductors simply cannot be directly compared to one another.

According to her, oil is a standardized commodity that is manufactured with a comparatively minimal amount of capital expenditure in relation to the price it commands. Semiconductors are items that are much more complicated, whose production costs increase proportionally with the level of sophistication of their design, and which are “based on the concept of the global division of labor.”

In addition, China controls essential components, such as silicon, which are used in the production of chips. There would be no chips, and hence no “chip bucks,” if these basic ingredients were not available.

Even if the United States intended to utilize its superiority in the semiconductor industry to promote the dollar’s supremacy, doing so could be difficult. According to Diana Choyleva, chief economist at Enodo Economics, “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.” “The world is bifurcating into an American sphere of influence and a Chinese one.”

“If the United States were to attempt to impose the use of the dollar outside its competitive market advantages inside its area, this would serve merely to alienate its allies,” she said, “this will serve to do nothing except alienate its partners.”

The concept of the “chip dollar” is, in the end, perhaps most similar to what the economic historian Adam Tooze refers to as “FinFi,” which stands for finance fiction. FinFi is speculative literature that attempts to anticipate what the future of the international monetary system may be like.

Instead of a “chip dollar,” an emerging alternative may be what Chinese academics have nicknamed the “gas yuan.” This moniker was given to the Chinese currency.

Already, China is the world’s leading importer of liquefied natural gas and the second-largest importer of pipeline gas after the United States. “the notion of a natural gas yuan as a regional currency is possible, but not necessarily on a worldwide scale,” said Liu. This is due to China’s clout as a large natural gas user, as well as the relative fragmentation of the global gas markets.

This may, in the long run, result in the fragmentation of the global monetary system, which would then be characterized by several currencies as opposed to the mostly used dollar.
A multi-currency system is precisely what Beijing intends, as Choyleva pointed out in her recent co-authored study on China’s ambitions to decouple from the dollar, and this has the potential to have major ramifications for geopolitics. The paper was about China’s aspirations to divorce from the dollar.