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Banking & finance
OpinionComment
James A. Fok
James A. Fok

The View | A more global yuan is not a zero-sum game for China and the US

  • Encroachments by the yuan on the US dollar’s international turf will be evolutionary, not revolutionary – because of Chinese policymakers’ caution
  • Besides, given that demand for dollars has reduced the competitiveness of US exports and cost the country jobs, a more internationalised yuan could help American workers

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Counterarguments against the dollar’s demise neglect the growing attractiveness of the renminbi both as a store of value and as a vehicle for international trade and investment. Ultimately, however, the internationalisation of the yuan does not mean the US has to be a loser. Photo: Shutterstock
James A. Fok

Across the spectrum of recent public discussion about de-dollarisation, commentators have tended to focus on negative factors and ramifications.

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American monetary profligacy, fiscal incoherence and the weaponisation of the dollar, are driving other countries to settle bilateral trade in their own currencies and encouraging central bank reserve allocations to gold.
Counterarguments against the greenback’s demise tend to focus on its entrenched status and the absence of credible alternatives. China’s lack of a fully open capital account, unwillingness to run persistent trade deficits and a one-party political structure all mean that the renminbi can never challenge the dollar’s global leadership.

These arguments, however, neglect the growing attractiveness of the Chinese currency both as a store of value and as a vehicle for international trade and investment. Significant developments in China’s financial markets are changing the game board.

First, while China’s capital account is not fully open, thanks to the stock and bond Connect programmes via Hong Kong, international investment flows into and out of domestic securities markets no longer face any major barriers.
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Recent extensions of these programmes to allow mainland Chinese investors to invest in the securities of international companies listed in Hong Kong and beyond are likely to draw more offshore capital raising in renminbi, particularly when Chinese interest rates are lower than those in the US (as they are now). This will further increase the pool of renminbi securities available to international investors.

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