![]() This necessarily leaves any offshore yuan market vulnerable to Beijing’s whims. Even the financial institutions of Switzerland, traditionally paragons of political neutrality, are now poised to scale back operations in Hong Kong as a result.Īny offshore market for yuan, whether in Hong Kong or elsewhere, would require interfacing with mainland China’s financial system and ultimately its central bank. Beijing’s recent changes in how it governs Hong Kong evince an atomically opposite approach. authorities resisted any desire to try to meddle in these offshore markets. dollars in London thrived in part because U.S. The offshore Hong Kong market once seemed like it could facilitate the yuan’s rise as a reserve currency, much as the offshore “eurodollar” market that emerged in 1960s London once did for the dollar. Hence any market for Chinese yuan consistent with a role as a global reserve currency would need to exist outside of mainland China. These capital controls stymie the development of liquid, globally accessible capital markets that can offer safe assets. But Beijing imposes capital controls on flows of money in and out of the mainland. The most natural home for these safe assets denominated in mainland China’s currency would be mainland China. Without safe storage options, like easy-to-access banks or at least low-risk bonds, a currency can become a costly thing with which to do business. After all, no one wants to sell stuff in exchange for money they’d struggle to safely store. Nonetheless, Beijing’s recent actions have eviscerated the yuan’s prospects as a real reserve currency.įor a currency to function as an international reserve, global businesses need safe places to put it when it’s not in use. “Overall economic structures in euro area countries,” economists at the European Central Bank concluded in 2019, “are still not fully commensurate with the requirements of a monetary union.” But Beijing is not dealing in the currency of a monetary union that, according to research at its own central bank, maybe shouldn’t even exist. Officials in the world’s third-largest economy, the European Union, may voice similar intentions. And Beijing is keen to take steps intended to promote its currency’s use in international trade. ![]() The country’s growing economy, after all, is the world’s second largest. Global banks planned for it to “inevitably” replace the dollar. The dollar can’t be displaced with nothing, and mainland China’s currency, the yuan, was once the most-viable something. It’s the latest arrival to the motley crew of conspirators serving, unwittingly, to prevent the currency from leaving its seat. In fact, there is a new player keeping it on its throne: the Chinese Communist Party. They continue to render any end to the dollar’s reserve status today unlikely. The Chinese Communist Party is the latest in a motley crew of conspirators serving, unwittingly, to prevent the dollar’s status.īut the economic forces that thwarted any demise of the dollar in the past persist. Taken at face value, the headlines suggest that the dollar’s long-awaited dethroning may be here at last. New plot lines include the economic fallout of a global pandemic as well as a “ capital war” between the United States and China, in which Washington usurps Beijing’s traditionally lonely role as the imposer of the restrictions on how capital can move between their two countries, frightening global investors, who then forsake the fallen dollar. The cast of characters that avail themselves for the script includes international trade, financial architecture, great-power competition, cycles of history, and even parables from ancient Greece.Īnd on cue, the headlines are again churning out new versions of the familiar fable. dollar as a reserve currency is one of them. Compare various denominations for the Chinese Yuan / US Dollar exchange rate conversion on the 22nd March 2023 using the data table below.If some stories are easier to tell than others, the decline of the U.S.
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