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Heavy is the head that wears the crown, and contrary to popular belief, Beijing doesn\u2019t want the yuan to dethrone the dollar as the world\u2019s dominant currency, according to a top China scholar.<\/p>\n
While China has been trying to internationalize the yuan, also known as the renminbi, it doesn\u2019t want the obligations that come with being the global reserve currency, Zongyuan Zoe Liu, senior fellow for China studies at the Council on Foreign Relation, wrote in Foreign Affairs this month.<\/p>\n
To truly take the dollar\u2019s place would require open capital markets, which would threaten the Communist Party\u2019s control over who gets capital and how, she explained. That\u2019s as many elites rely on offshore dollar holdings as a type of insurance against domestic political persecution. <\/p>\n
Since China actually prefers to keep the dollar on top, the real reason for promoting the yuan abroad is to prevent the U.S. from weaponizing the financial system against it, Liu added, similar to how Russia was shut out after it invaded Ukraine in 2022.<\/p>\n
A yuan network that\u2019s international enough, even without being dominant, could bypass any dollar-based sanctions the U.S. might impose in the future. <\/p>\n
\u201cPlacing a respectable second, or even a consequential third, would suffice to break the dollar\u2019s effective monopoly and constrain the United States\u2019 ability to impose financial sanctions unilaterally, while saving China the effort and cost of sustaining currency supremacy,\u201d she said. <\/p>\n
\u201cFrom Beijing\u2019s perspective, the mission is to establish the renminbi as the Pepsi to the dollar\u2019s Coca-Cola: never the market leader, but serviceable in a pinch and more than capable of keeping the dominant incumbent honest.\u201d<\/p>\n
(For what it\u2019s worth, Pepsi has actually fallen further behind Coke in the cola wars and was dealt a major symbolic defeat recently when KFC said it would replace PepsiCo soft drinks with Coca-Cola\u2019s products at its 3,700 U.S. restaurants.)<\/p>\n
So far, China facilitates renminbi use among firms in more than a hundred countries and across a growing array of commodity markets. As of June, its Cross-Border Interbank Payment System had 1,829 participants who could send payments to more than 5,200 banks in 191 countries.<\/p>\n
Global currency requirements<\/p>\n
But that\u2019s just a small fraction of what the U.S.-dominated system processes, Liu said, adding that a global currency also entails pricing, financing, risk transfer, and reinvestment.<\/p>\n
Chinese exporters still invoice in dollars and convert them to yuan just before brining them into China. But Beijing is promoting \u201cChina prices,\u201d or yuan benchmarks on domestic commodity exchanges and has succeeded with lithium, she noted.<\/p>\n
The financing stage is gaining momentum too as Chinese banks have more than doubled their yuan lending to overseas borrowers between 2023 and mid-2026. The People\u2019s Bank of China has also reached currency swap agreements with 32 foreign central banks and monetary authorities.<\/p>\n
More modest steps have increased the yuan\u2019s presence in risk transfer markets as state firms have begun settling cargo insurance in yuan. But reinvestment is perhaps the weakest link in the chain. A strong yuan ecosystem requires recipients to hold and reinvest their balances rather than convert them, Liu argued.<\/p>\n
China has expanded overseas access to domestic stocks and bonds, but Beijing\u2019s unpredictable capital controls remain a worry. In March, foreign investors held just 1.6% of the Chinese bond market versus 27% in the U.S. bond market.<\/p>\n
\u201cWithout a far larger pool of renminbi assets that foreigners can freely buy and sell, the renminbi cannot come close to replacing the dollar,\u201d she said.<\/p>\n
But similar to how the \u201cpetrodollar\u201d anchors the greenback\u2019s role in global trade, the yuan can dominate trade in an essential good that China controls.<\/p>\n
That could take the form of critical minerals, clean energy equipment, and electrical infrastructure used in green energy technology, Liu posited. <\/p>\n
China has already established supremacy across much of the green supply chain and is promoting standards built around technologies Chinese-owned firms.<\/p>\n
\u201cIf China consolidates its dominance over that industrial ecosystem, using its scale and cost advantages to prevent competitors from catching up, it could gain enough leverage to price those essential, hard-to-substitute exports in renminbi, creating the foundation for a \u2018green yuan\u2019 that might eventually replace the petrodollar,\u201d she predicted.<\/p>\n
Petroyuan<\/p>\n
Meanwhile, the Iran war has raised doubts about the petrodollar, which goes back to a deal struck in 1974 when Saudi Arabia agreed to price its oil in dollars and invest surpluses in U.S. assets.<\/p>\n
In exchange for Saudi Arabia recycling its dollars back into the U.S., Washington guaranteed the kingdom\u2019s security, which also involved stationing troops in the region, providing advanced weapons, and ensuring free navigation in the Strait of Hormuz.<\/p>\n
But America\u2019s role in the Mideast looks vastly different today. Despite 40 days of punishing bombardment of Iran and round-the-clock protection of commercial ships, the U.S. still hasn\u2019t fully restored traffic in the strait.<\/p>\n
At the same time, Iran\u2019s swarms of missiles and drones have inflicted significant damage on U.S. aircraft, radars and bases, while American air-defense systems have failed to completely protect Gulf allies\u2019 critical energy infrastructure.<\/p>\n
\u201cDamage to Gulf economies could encourage an unwind in their foreign asset savings,\u201d Deutsche Bank warned in March. \u201cIn this context, reports that the passage for ships through the Strait of Hormuz may be granted in exchange for oil payments in yuan should be closely followed. The conflict could be remembered as a key catalyst for erosion in petrodollar dominance, and the beginnings of the petroyuan.\u201d<\/p>\n
#China #sees #yuan #dollar #Pepsi #Cokenever #market #leader #serviceable #pinch<\/p>\n","protected":false},"excerpt":{"rendered":"
Heavy is the head that wears the crown, and contrary to popular belief, Beijing doesn\u2019t…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[245],"tags":[173,23924,2638,2043,467,33,6845,6467,2740,23925,6368],"_links":{"self":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts\/19486"}],"collection":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19486"}],"version-history":[{"count":0,"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts\/19486\/revisions"}],"wp:attachment":[{"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19486"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19486"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}