According to experts, more and more countries are starting to use the yuan as the means of payment in global transactions. It is no surprise as China’s government has been trying for a long period of time to make the yuan an alternative to the US dollar, dethroning it from the pedestal of the first reserve currency.
Zhou Li, the former deputy head of the International Liaison Department of the Communist Party of China, believes that it is vital to form an economic bloc that will use the yuan as the main currency. Such a coalition will be a worthy competitor to the Western financial system where the greenback dominates, Zhou Li stresses. In addition, in the near future, China will face a deterioration in US-China relations, an escalation of the trade war, and a decrease in demand for its goods.
Therefore, it would be wise to address these challenges by shifting attention to the domestic market and replacing the greenback with the yuan in international settlements with the main trading partners. The official is deeply concerned about the US control over the main channel of international payments, namely the SWIFT system. According to Zhou Li, as long as data about international payments of Chinese, Russian and Iranian companies is in the hands of Washington, these countries have little leverage on the US and can hardly feel at ease. He calls on the Chinese authorities to tackle this problem.
"By taking advantage of the dollar’s global monopoly position in the financial sector, the US will pose an increasingly severe threat to China’s further development,” Zhou wrote an article published by the Beijing-based think tank Chongyang Institute for Financial Studies.
Zhou Li's statements caused a great resonance in the West, triggering a wave of contradictory responses in the Japanese and American media. Interestingly, Chongyang Institute is the Chinese equivalent of the US magazine, Rand Corporation. Besides, Rand Corporation is believed to be a large media source censored by the US government. It means that to some extent, Zhou Li's article somehow expresses the point of view of China's government.
Analysts assume that Zhou Li's remarks were the new blow against the US after recent no less radical statements by senior Chinese officials. In June 2020, Chinese Vice Premier Liu He, the chief negotiator in talks over the US-China new trade agreement, declared the priority of domestic market turnover when it comes to the recovery of the Chinese economy. This year, such recommendations were proposed by the Deputy Chairman of the Securities Control Committee of the People's Republic of China, Fang Xinghai. He urged Chinese businesses to prepare for possible disconnection from the global SWIFT settlement system. The official has warned that currently, China is vulnerable to potential sanctions from Washington.
Experts have more than once voiced corners over the devastating effect of the US sanctions. Now, relations between Beijing and Washington remain strained. On April 19, the Chinese authorities announced sanctions on Republican Senators Marco Rubio and Ted Cruz, both outspoken critics of China, Ambassador-at-Large for International Religious Freedom Sam Brownback, and a government agency, the US Congressional-Executive Commission on China. This was a tit-for-tat response to US sanctions imposed on Beijing officials allegedly involved in the violation of the rights of Muslims in China.
The Chinese authorities are worried about the prospects for the US dollar. According to Fang Xinghai, a sharp depreciation of the US currency could have a negative impact on the Chinese economy. Other experts shared the same opinion, noting that the Fed had recently got carried away with printing money. The growing share of the US currency in the market may lead to serious consequences in the world economy. The current situation has caused a record growth in stock markets which may eventually cause a slump of USD.
China has invested more than $1 trillion in US government bonds. This is why a possible weakness of the US currency poses a threat of colossal losses. In this situation, Beijing can only count on the stable yuan, especially if it becomes an alternative to the greenback. If China's foreign assets were stored in yuans, the country would benefit greatly, officials noted. The internationalization of the yuan will help offset external financial pressure, Fang Xinghai said.
Previously, the country used the China International Payments System(CIPS). Russia developed its own system for the transfer of financial messages (SPFS). In 2020, the countries agreed to unify payment systems for international payments. Nowadays, the SPFS system provides payments in rubles, and CIPS in yuans. Users of these systems do not depend on the US and the SWIFT system. They do not need to make transactions only in USD. According to experts, this measure weakens the US dollar's position as a reserve currency.
