China’s currency revolution defies odds on the global stage
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China’s renminbi has been on a wild ride this year, and it’s not just because of rollercoaster-like fluctuations in its value. The currency has been underperforming, especially against the US dollar, with an 8.5% depreciation from its January lows. However, this seeming setback is part of a larger, more intriguing story: the renminbi’s growing influence on the world stage. China Emerges as an Unexpected Twist in Global Finance In a surprising turn of events, the weaker renminbi has been gaining ground in global payments. From a modest 1.9% share in global payments at the start of the year, it has impressively doubled to 3.6% by October 2023. This growth, albeit still small compared to the dominant US dollar and euro, signals a potential shift in the global currency landscape. It’s particularly noteworthy considering that China has been pushing for the internationalization of its currency since 2004, but with limited success until now. This surge in cross-border use of the renminbi is partly fueled by China’s strategic moves to use its currency for international trade settlements. Nearly 30% of China’s trade in goods and services is now settled in renminbi, a significant leap from previous years. This shift isn’t just about economics; it’s also a geopolitical chess move. China is reducing its reliance on the US dollar and other G7 currencies, particularly in the wake of Western sanctions against Russia and escalating tensions with the US over Taiwan. Geopolitical Chess and Financial Strategies China’s push to internationalize the renminbi isn’t happening in a vacuum. It’s a response to a complex global landscape, where financial and geopolitical strategies intertwine. The country’s development of its own international payment system, Cips, is a case in point. This system, which operates independently of the Swift interbank messaging system, has gained traction, especially since it’s harder…
Filed under: News - @ December 6, 2023 11:26 pm