Explainer | As China’s yuan becomes more globally used, which currencies will it surpass by 2030?
- Bolstering the yuan’s internationalisation has been on Beijing’s agenda for years, and here’s why doing so remains essential in leadership’s plans
- But how will China’s political structure assist and impede the development of the world’s second-largest economy?
With China’s rapid ascent of the global economic ladder in the past several decades, Beijing has been promoting the yuan both as an alternative currency in international trade and as a reserve currency.
Why does China want to internationalise the yuan?
Cross-border financial activities will be safer for China if the yuan is used as the unit of exchange, as it will reduce exchange-rate risks and allow the country to be less reliant on foreign institutions and international payment systems.
This will also allow the world’s second-largest economy to borrow large amounts of money at lower interest rates internationally, as there will generally be higher demands from other countries for the yuan if it is used for their own trade invoicing and settlement.
What has China done to push for global use of the yuan?
The Chinese government has set up global offshore yuan markets in cities such as Hong Kong, Singapore, London, Paris and Luxembourg that are kept separate from the onshore market.
Offshore market exchange rates are left to market factors without any regulatory intervention, whereas only partial convertibility is allowed in the onshore markets.
It allows the Chinese government to “retain the option of adjusting the extent of its capital controls when the needs arise”, Lai said.
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