Meanwhile, the main channel for inflows is investment into China’s financial markets. Beijing is trying to ramp up outflows by concentrating its efforts on trade. Initial progress was encouraging, thanks to the yuan’s appreciation against the dollar, but cross-border use declined in tandem with a reversal in the yuan’s exchange rate.Īfter taking stock, Beijing has focused since around mid-2017 on giving foreigners reasons to use the yuan despite the higher cost of transacting in it, based on its merits as a medium of exchange, store of value, and unit of account-the characteristics of a global reserve currency.Īt its most basic, Beijing is trying to create a permanent and sustainable cycle of yuan flowing out of China into the global economy, then flowing back again. It wants to reduce its dependence on the dollar and achieve greater financial self-reliance.īeijing laid the foundations of its campaign from 2009 to mid-2015, making it possible to transact in yuan overseas and creating opportunities for foreigners to use the currency. For it is in Asia that the United States’ global financial hegemony is being most keenly contested-by China.įor several years now, starting in response to the 2008-09 global financial crisis, Beijing has been pursuing a coherent, long-term strategy to decouple from the dollar and coax its Asian neighbors to join a regional monetary order that would have the yuan, China’s currency, at its core.Ĭhina wants to be able to purchase what it needs from other countries using its own currency and its own payment systems. But the longer-term ramifications are likely to be significant. The direct fallout in Asian banking markets has been limited. The collapse of Silicon Valley Bank after a sharp rise in interest rates over the past year slashed the value of the bank’s bond holdings and put the spotlight on other weak banks: Witness the rapid demise of Credit Suisse after anxious depositors deserted Switzerland’s second-largest lender, prompting the Swiss authorities to arrange a shotgun takeover by the bank’s bigger rival, UBS (formerly Union Bank of Switzerland). Washington needs to take decisive steps to shore up confidence, including extending dollar credit lines to a clutch of Asian countries. banking turmoil is casting doubt on America’s ability to maintain its leadership of the global monetary system.
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