China tweaks global yuan strategy in signal of growing caution

China has tweaked one word in its policy to internationalise the yuan, a change that analysts see as a sign of Beijing’s new-found caution in promoting the international use of the currency.

In a communique outlining the country’s next five-year plan for 2021-25, China’s Central Committee said it would “steadily and prudently” promote the internationalisation of the yuan, a change from the previous wording that only included “steadily”.

The slight adjustment, from Wenbu to Wenshen in Chinese, showcased Beijing’s growing concern about risks stemming from cross-border capital flows, even though China remains committed to boosting use of the yuan in international trade and investment, analysts said.

Zhang Yuyan, a researcher at the Chinese Academy of Social Sciences, said at a press conference this week China was trying to be “prudent” about the yuan’s global push because it related to exchange rate liberalisation, capital market opening and “financial security”.

“But China still has to go ahead. If you think China will be conservative or even stop the process of yuan internationalisation, you are wrong,” he said.

Steady development of the yuan was first introduced in 2016 when China began planning to open up its capital account and make the yuan fully convertible into other currencies.

According to a just-published book from the government explaining the next five-year plan, the currency’s development “must be based on the free use of the yuan, driven by the market and left up to the choice of enterprises”.