Asia Sentinel, 29 Dec 2008, Philip Bowring
China's currency isn't about to replace the US dollar as a fiat currency any time soon
Much has been made, particularly in Hong Kong, of China’s decision last week to allow settlement of certain cross-border trade in yuan. For sure, this is a step forward towards full convertibility which would increase the role of the nation’s currency. However, the notion that it will significantly reduce the role of the US dollar in trade transactions except in the very long term is dubious. Indeed, China has good reason not to want to see its currency in demand outside its borders, flattering though that might be.
China in fact could well look at the failure of the yen to play a larger role in trade despite many years of full convertibility and the enormous role that Japanese companies have played, and continue to play, globally. Indeed, if China wants to get away from dollar dependence it might do well to encourage more invoicing in the only two currencies which currently provide a realistic alternative – the euro and the yen.
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