Guerra delle valute

China "sharpens" the yuan's weapon: this is how Beijing challenges the dollar

China is struggling with a shaky economy but its currency, the yuan, appears to be in excellent shape.
Over the course of 2023, the Chinese currency has nearly doubled its share as the currency used in global payments.
Of course, the figures at stake are still quite modest and, with a 47% slice of the pie, the US dollar is still quite a distance from the renminbi.
Meanwhile, however, the use of the yuan in global payments has gone from occupying a share of 1.95% in January to the current 4.6%.
As if that weren't enough, China's more than 30 bilateral currency swap lines with other central banks – often belonging to countries with serious economic problems, such as Argentina – are putting more yuan into circulation beyond the wall.
In short, Dragon institutions are increasingly lending local currency abroad, while borrowers are happy to collect this money due to high US interest rates.
There are, then, at least two other causes that are facilitating the silent expansion of the renminbi.
One coincides with the war in Ukraine, with Russia increasingly economically (and financially) linked to the Dragon.
The "people's currency" is at the forefront of affairs along the Moscow-Beijing axis, and is gradually carving out increasingly relevant spaces for action.
The other push for the internationalization of the yuan comes from the corporate cash pooling of some Western multinationals.
The weight of the yuan and the challenge to the dollar The yuan is used by China as a vehicle to achieve its geopolitical ambitions.
Its state of form, therefore, not only has economic implications but also and above all geopolitics.
An example? The Chinese currency has lost more than 3% of its value against the dollar this year (1 dollar now buys about 7.15 yuan).
In theory, a weaker yuan should make Chinese products cheaper for the rest of the world and increase domestic demand in the Asian country.
However, as the Wall Street Journal highlighted, the situation is different.
The value of the yuan is in fact considered a reflection of confidence in the Chinese economy, which is suffering from a moribund real estate market, a slowdown in production and a reluctance on the part of consumers to spend their savings.
Put another way, the Chinese central bank's concern is that currency weakness could exacerbate negative sentiment among foreign and domestic investors.
Regardless, the dollar is the world's global reserve currency, covering about 90% of foreign currency transactions, according to the Bank for International Settlements.
This gives the United States a huge advantage over other countries, but China has taken steps to erode that advantage by attempting to promote the use of the yuan around the world.
Foreign banks already accept offshore renminbi deposits, and their customers can use this money to buy yuan-denominated stocks and bonds outside mainland China.
Renminbi rally Xi Jinping has wooed governments in the Middle East into accepting yuan payments for oil.
Russia, as mentioned, already accepts payments in yuan for some of its oil shipments, while other developing countries are in favor of focusing on the Chinese currency.
The result is that at the end of November the yuan was the fourth most used payment currency in the world, having overtaken the Japanese yen for the first time since January 2022.
Meanwhile, Zheng Chiping, head of the Department for the Utilization of Foreign Investment and of the National Development and Reform Commission, explained that China will launch a package of measures in 2024 to increase the attraction of foreign investment.
The Asian giant, the senior official added, will eliminate all restrictions on foreign investment in the manufacturing sector and continue to open up the services sector.
Official data shows that foreign direct investment in mainland China currently stands at 1.04 trillion yuan (about 146.53 billion US dollars) in the first 11 months of the year, remaining at a historically high level amid of slow cross-border investment globally.
read also The latest chapter of the Chinese debt crisis: what happens to Hywin Holdings

Author: Hermes A.I.

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