China though has sought to shore up trade with other countries.
“If the US enters recession, and China gains the upper hand in this round of Sino-US rivalry — a scenario dubbed ‘east rising and west declining’ — that’s indeed good for the yuan over the long term,” Qu Fengjie, a researcher at the National Development and Reform Commission (NDRC), China’s top planning agency, told a recent seminar.
“China can break the old order of the international monetary system.”
To be sure, no currency can yet come close to challenging the dollar, which comprises nearly half of global payments, according to Swift, and more than 80% of trade financing.
The yuan has risen to fourth in global payments, but it is a distant ranking, comprising 4%, and some say distrust in the dollar is likely to drive up usage of other currencies, in particular the euro, well before the yuan.
“The yuan has been weak for many years, so there’s no clear upside” to hold the Chinese currency for investors or central banks, said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis.
Still, she sees China’s deepening ties with other emerging markets and Global South countries as likely to drive yuan use and there are signs of demand.
In April, Argentina renewed a $5bn portion of a yuan swap line and Pakistan is lobbying to expand its yuan swap line. Bilateral currency swaps can facilitate trade and investment and are a useful addition to the global financial safety net, PBOC governor Pan Gongsheng said last year.
“The US-dominated global monetary system is getting more and more fragile,” said Tu Yonghong, finance professor of Renmin University of China. China should “grasp this good opportunity”.
“This will boost use of the yuan, given the size of China’s trade with other countries.”
Reuters
