How will the US sanctions affect China's plan to internationalize the "yuan"?

[yota691]

How will the US sanctions affect China's plan to internationalize the "yuan"?
The threat of US sanctions against Hong Kong has added urgency to Beijing's efforts to reduce its dependence on the US dollar

The adequacy of Euler press 
Friday 17 July 2020 17:04
    

China reduces dependence on the US dollar in favor of the yuan (Reuters)

Analysts said Washington's decision to impose sanctions on Chinese individuals and financial institutions for their role in developing the new Hong Kong national security law could threaten Beijing's efforts to make the yuan an international currency.

At the same time, some say that American threats added new urgency to Beijing's goal of reducing its dependence on the US dollar by enhancing the international use of the yuan.

On Tuesday, US President Donald Trump signed an executive order ending Hong Kong's special status under US law, in response to Beijing's imposition of the National Security Law, which marks a step toward US financial sanctions against officials and Chinese banks that deal with them.

The escalation between the world's two largest economies has created uncertainty about the future of Hong Kong as a global financial center and threatens the plan to internationalize the Chinese yuan. Analysts said the city is the bridge for currency access to global markets, accounting for more than 70 percent of its use in "external" payments.

Investors are wary of increasing their exposure to the yuan quickly

Matt Gerken, a geostrategic strategist at BCA Research, a holistic research firm, told the South China Morning Post that the intense confrontation between China and the United States is causing doubts about the yuan’s value and long-term availability, which hinders China is trying to internationalize its currency. "

"The direct geopolitical challenge from the United States will make investors wary of increasing their exposure to the yuan quickly, at a time when Washington is increasingly interested in limiting China's financial rise as well as its technological rise," Gerkin said.

He pointed out that if the United States is to establish deeper trade ties with other economies, these countries may not join China in creating a global architecture to bypass the US dollar. Gertkin said that the compatibility of the liberal Western democratic model with the Chinese authoritarian model is undermined by Beijing's imposing tighter central control over Hong Kong.

China and the exchange of bilateral currencies from 40 central banks

China’s drive to eliminate the US dollar as a global base currency gained momentum after the 2008 global financial crisis. Beijing increased its use of the yuan in cross-border trade and investment, established a cross-border currency payment system, and signed bilateral currency exchange agreements with nearly 40 banks Centrally around the world, it promoted the idea of a sovereign super-currency based on Special Drawing Rights (SDR), an accounting unit developed and introduced by the International Monetary Fund.

Hong Kong, which has a currency different from the mainland, was the first to receive Beijing's global plan for the yuan. Hong Kong retailers and currency exchange serving the mainland tourist have begun to accept the yuan before elsewhere, and the "Stoke Connect" mechanism, which allows foreigners to invest in mainland stocks and bonds through Hong Kong, provides investment channels for the external yuan.

But the main obstacles remain to the internationalization of the yuan. Unlike Hong Kong dollars, the possibility of freely converting the Chinese currency to other currencies is still available, even after receiving the nominal status of the international currency in 2016 by listing it in the basket of special drawing rights currencies alongside the US dollar, European euro, British pound, and Japanese yen. .

It is noteworthy that Beijing has tightened its control over payments issued in recent years after the capital migration that followed the stock market defeat in 2015, to ignore the goal of making the yuan an international currency.

Jia Kang, a former researcher with the Ministry of Finance, said earlier this month that it was not yet time for China to "destroy its firewall" from capital controls, because it still needed a closed capital account to protect its domestic financial system from external shocks.

More stringent Chinese ability to convert foreign currencies

"After the trade war (with the United States), we saw dramatically stricter conditions on the ability of Chinese citizens to convert foreign currencies," Jia added. "The issue is not about how to speed up the internationalization of the yuan, but the focus should be on how to stick to China's current position."

Besides the closed-capital account that prevents huge outflows, China’s policy of maintaining a stable exchange rate of the yuan against the US dollar, while engineering a rapid recovery in economic growth, has led to an increase in capital flows.

China will insist more on internationalizing the yuan

China still wants to promote the use of the yuan outside its borders, especially between belt countries and roads, said Tommy Wu, economist at Oxford Economics University. But the yuan's appetite could weaken during the heightened conflict between the United States and China.

But Wu pointed out that if the yuan’s use decreased at any time, it would be because of the separation process between the United States and China, which would make other countries move away from China.

However, Beijing's desire to reduce its dependence on the US dollar is clear, and discussions have intensified over how to use the yuan as an alternative.

Zhou Li, former deputy director of the Communist Party's International Communication Department, wrote last week that it was time to separate China itself from the US dollar before a full confrontation. "By taking advantage of the dollar's global monopoly, the United States will pose a very serious threat to further development in China," he added.

"But it is always an uphill battle to challenge the dominant role of the US dollar in the global monetary system, which is backed by the economic, military, and institutional strength of the United States and enhanced by options for banks, traders, and investors around the world," Gerkin said.

 He added, "China will become more urgent in internationalizing the yuan, but the rest of the world will not share it with this urgency."

[PeaceSign]

Thanks  Yota. This is what I am trying to figure out. I would like to know how many US dollars they are holding and where and how. For example did you know China owns major ports in America (Seattle and California)...they def have all kinds of major access to real estate and us dollars. Getting rid of Chinese owned should be what American politicians are after. But they are shady too cuz it will sound like an american or indian company and actually be Chinese owned. Clever they are.

[md11fr8dawg]

I believe they own the port in Long Beach also.