The recent rise of DeepSeek AI has prompted some analysts to suggest this could aid in strengthening the Chinese yuan and dethrone the US dollar’s global dominance.
This comes as the Chinese AI has been eating into America’s AI edge and the tech industry as a whole. According to the South China Morning Post (SCMP), the US stock market, which is tech-heavy, has been one of the strong pillars that have supported the US dollar’s global standing.
DeepSeek could be the answer to China’s yuan after driving the AI industry
In January, DeepSeek drove the AI industry into delight and turmoil after it launched its AI-powered chatbot at the fraction of the price of others, and challenged US-made generative AI models like OpenAI’s ChatGPT and Google’s Gemini. Now, discussions around DeepSeek’s rapid rise have taken on a new twist. Some market watchers opine the world might also see the rise of the Chinese yuan as a global currency ahead of the US dollar.
A London-based asset management firm Ninety One wrote that DeepSeek’s rise could erode one of the key pillars that anchor the US currency’s global dominance, that is the tech-heavy US stock market.
“If DeepSeek’s efficiency gains are verified, it is likely to lead to lower investment requirements and a flattening of technology barriers at a global level,” wrote Ninety One’s multi-asset portfolio manager Alex Holroyd-Jones in a recent article titled “How DeepSeek Might dethrone the dollar.”
“Both will implicitly benefit energy-poor regions and relative tech laggards, thereby undermining one pillar of US exceptionalism.”
Holroyd-Jones.
In his piece, Holroyd-Jones identified three pillars that have always supported the US dollar’s global dominance. These are expansionary government policy, higher interest rates, and technological leadership, where the US has been at the forefront of technological innovations, particularly AI.
US’ tech leadership has anchored its markets and currency
According to Holroyd-Jones, US’ tech leadership has been a strong pillar that helped attract global investors ahead of other economies like China.
However, the rise of DeepSeek in January sparked a US AI stock sell-off and fueled calls for a re-evaluation of tech stocks. DeepSeek dropped another open source model on Jan. 27, further sending US stocks into mayhem with chip making firm Nvidia experiencing its biggest decline in a single day.
This also came as the Chinese startup further claimed the superiority of its model in a technical report on Monday. DeepSeek said its model outclassed rivals from OpenAI and Stability AI on rankings for image generation using text prompts.
With this, Holroyd-Jones maintained that US tech leadership could face challenges and have an impact on its currency’s strength.
“There is still the issue of US technological leadership, which remains a factor in maintaining the dollar strength. This is where DeepSeek comes in.”
Holroyd-Jones.
He further queried: “As markets continue to gauge the technological impact, as well as its asset price implications, a key question emerges – could China’s technological breakthrough challenge American exceptionalism – the outperformance of US risk assets and the US dollar relative to global markets?”
Already, some investors are shifting their attention and becoming intrigued with Chinese AI stocks, slowly helping the Asian country regain appeal. As per an earlier Cryptopolitan report, after establishing multiple crackdowns, China has now pushed away several key investors who sought new markets in India and other Asian counterparts.
But the new DeepSeek tool may have been the right answer, throwing Chinese equities a lifeline. The startup has reportedly spurred an additional $1.3 trillion into the Chinese equity markets in a month as hedge funds have been pouring more investments into stocks driven by growing hopes for additional economic stimulus and the chatbot’s growth.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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By Nermeen Nabil Khear 