Editorial | China well placed to take advantage of the shift away from the US dollar
A stable and strong yuan has international appeal, just as a reliable and strong China is being seen as the rock on which the global system should be rebuilt
Beijing is not looking to replace the US dollar. Instead, it wants to prepare the yuan as a hedge and counterweight to limit the leverage Washington has amassed over the global financial system.
As more countries fret about Trump’s erratic policies and their faith in the US currency is shaken, Beijing needs to prepare for the yuan’s rise. Hong Kong, as the premier yuan hub, will be a big beneficiary.
Less than 2 per cent of global reserves are held in yuan, contrasted with 57 per cent for the US dollar and 20 per cent for the euro, so displacement is not a realistic goal. However, it is disproportionate to the size of the Chinese economy as the world’s second largest, or the largest if assessed by purchasing power parity.
The main issue is capital controls, which make free convertibility difficult. The US Treasury has blamed Beijing for keeping the yuan “substantially undervalued”. This is perhaps ironic when the US president himself has openly declared a preference for a weaker dollar to boost trade.