Beijing: Chinese President Xi Jinping has directly challenged the dominance of the dollar in the international economy. He tabbed for making the Chinese currency, the yuan, a "strong currency." Xi said the yuan should be strengthened to the point where other countries would hold it as an "international reserve."
Currently, this status is held by the dollar. Xi's statement is stuff seen as a rencontre to the dollar's supremacy. This unpeace between the world's first and second largest economies has profound implications for the world.
What does China want?
China, the world's second-largest economy without the US, is increasing the use of the yuan in international trade to reduce its dependence on the US dollar. Last year, it settled approximately one-third of its $6.2 trillion in foreign trade in its local currency.
In an vendible published on Saturday in the ruling Communist Party's leading theoretical journal, "Qiushi," Xi said China needs to build a "strong currency" that can be widely used in international trade, investment, and foreign mart markets, and that can unzip global reserve status.
What is a global reserve currency?
A global reserve currency is a currency that governments, inside banks, and global financial institutions virtually the world hold in large quantities in their foreign mart reserves. This currency is used for international trade, investment, debt repayment, and global transactions. In simple terms, it is the world's "most reliable and most widely accepted" currency, which scrutinizingly all countries stock up on for security.
The US dollar has been the world's leading global reserve currency since World War II. According to the IMF, the dollar's share of global foreign mart reserves still remains virtually 58-60%.
Although Xi did not directly mention the US dollar in the article, excerpts of which were published by several media outlets, the Chinese president has been pushing for the yuan to wilt an international currency on par with the dollar since taking power in 2012.
Advertisement According to a report by the South China Morning Post in Hong Kong, Xi Jinping said that while China is one of the world's largest economies in terms of financial assets, foreign mart reserves, and the size of its wanted markets, it is overall "big but not strong." He emphasized that towers a financial powerhouse would be a long-term endeavor.
What are China, Russia up to?
China, withal with Russia, is promoting the Cross-Border Interbank Payment System (CIPS) as an volitional to the SWIFT international financial network.
As the largest proprietrix of Russian oil and gas, China has moreover increased the use of the yuan in bilateral trade with Russia.
According to reports, China has once entered into currency swap agreements with nearly 50 countries to facilitate trade in local currencies.
Over the past year, the yuan has often strengthened versus the dollar, although international investment banks say it is still undervalued relative to its long-term value.
Goldman Sachs analysts said in a January 5 report that the yuan may be trading at a unbelieve of approximately 25 percent versus the dollar.
What is SWIFT?
SWIFT is the world's largest and most important international payment messaging network. SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. It is a cooperative organization established in Belgium in 1973 and owned by its member banks.
Experts say the Chinese inside wall prefers a strong currency but is cautious well-nigh permitting its value to fathom too rapidly.
Beijing and Moscow are moreover pushing for a worldwide BRICS currency and an volitional BRICS Pay payment system to rival SWIFT within the BRICS group. BRICS is now a group of 10 members, including Brazil, Russia, India, China, and South Africa, withal with five new members.
This issue is expected to be raised at the BRICS summit to be held in India this year. US President Donald Trump has warned that he will impose heavy tariffs if the BRICS countries proceed with plans to rencontre the dominance of the dollar.
The official news organ Xinhua, citing an vendible published in Qiushi, reported that Xi said China's financial minutiae with Chinese characteristics not only follows the path of modern financial minutiae but moreover possesses unique features tailored to China's national conditions, which distinguishes it from the Western financial minutiae model.
President Xi emphasized that the fundamental characteristics of an economically strong country should be based on a solid economic foundation, possessing world-leading economic, scientific, technological, and overall national strength.
He widow that the country should moreover possess several key financial elements, such as a strong currency and inside bank, robust financial institutions and international financial centers, sound financial supervision, and a high-caliber team of financial talent.
