China Sees Energy Transition As Chance to Elevate the Yuan

  • Chinese policymakers see the global energy transition as a pathway to boost the yuan, Zongyuan Zoe Liu wrote.
  • China’s currency is used in key commodity markets that are essential in decarbonizing.
  • Its multilateral partnerships also provide Beijing with more influence in the commodity trade.

While the US dollar reigns supreme in global finance, especially in commodities markets, China sees an opening to elevate the yuan: the shift to renewable energy.

That’s according to Zongyuan Zoe Liu, a China scholar at the Council on Foreign Relations, who pointed to developments in key resources that are critical for green technologies like EV batteries and wind turbines. 

“These policymakers and scholars see the ongoing energy transition as an opportunity for the nation to raise the global standing of the renminbi in commodities markets; to them, there’s no guarantee that the US dollar’s dominance in our current fossil fuel-powered global economy will persist in a decarbonized world,” Liu wrote in Noema Magazine.

That’s as China is a dominant supplier of resources essential to turning economies green, such as rare earth minerals and critical metals such as cobalt.

To take advantage of this, the country has established a number of commodity exchanges where prices are quoted in yuan, she pointed out. 

These include the Bautou Rare Earth Products Exchange in 2014 and the Ganzhou Rare Metal Exchange in 2019. In a similar vein, authorities have also established yuan-denominated exchanges focused on oil and copper, another metal used in green energy as well as other industries.

Yet despite those advances, Beijing remains concerned about its heavy dependence on the US dollar for pricing and settling commodities contracts, Liu added. To that end, the country has also turned to multilateral partnerships. 

Groups such as the BRICS bloc and the Shanghai Cooperation Organization have not only helped China advocate for a less dollar-centric financial system, but have also bolstered the country’s reach in the global commodity trade, she highlighted.

For instance, China and Brazil, two BRICS members, are some of the largest lithium producers, while Iran may be added to that list. The Middle Eastern country, a member of both groups, also holds the world’s largest zinc reserves.

“In this context, as a non-Western group of countries, SCO potentially represents a potent coalition of exporters and importers of commodities centered around using the renminbi to finance the entire commodities lifecycle from production to trade to consumption,” Liu wrote.  

To strengthen currency ties between trade partners, Chinese authorities have long advocated for the use of local currencies, while also promoting ideas of regional integration and settlement systems, such as an SCO development bank.

Meanwhile, BRICS countries have been vocal proponents of de-dollarization, and some of the group’s newest members could be the most aggressive about rolling back the dollar.

Still, it’s not China’s aim to completely topple the dollar in international finance as that would be financially ruinous for the nation, given its heavy investment in US assets, Liu said. But Beijing’s efforts shouldn’t be ignored. 

“Should China successfully wean the world off the US dollar and the renminbi increase its status as a global currency or the dominant currency, it would reshape the global trade system and the international political landscape,” she warned. 

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