The last time a US Treasury secretary visited China, washington and beijing They were locked in a trade war. The Trump administration was preparing to label China a currency manipulator, and frayed relations between the two countries were weighing on global markets.
Four years later, while the Secretary of the Treasury, Janet L. Yellenarrived in Beijing, many of the concerns about US-China economic policy remain, or have even intensified, despite the less antagonistic tone of the Biden administration.
The tariffs he imposed donald trump to Chinese products are still in force: the restrictions on the automotive and cell phone industries were famous. And Biden has also pushed for clamps on Chinese access to semiconductor technology, while noting others to curb US investment in China.
Treasury Department officials downplayed expectations of major breakthroughs. They suggested that the meetings with senior Chinese officials were aimed at improving communication between the world’s two largest economies. But tensions remain high: Following talks between Yellen and Chinese businessmen, the Asian government threatened them with treason charges.
controls
Beijing is still upset by the Biden administration’s 2022 decision to place significant limitations on advanced semiconductor and chip-making machinery that can be shipped to China. That trap hampers China’s efforts to develop cutting-edge artificial intelligence. A logical obstacle in a global technological internship that is coupled to the economic one.
China has maintained one of the highest economic growth rates in the world in recent decades, helping to lift more than 800 million people out of poverty. The country is the world’s largest exporter and the most important trading partner of Japan, Germany, Brazil and many others. It has the second largest economy after the US based on market exchange rates, and the largest based on purchasing power.
And yet the yuan continues to lag as one of the major world currencies. But the war in Ukraine, which started in February 2022, may change that. The Asian giant has wanted to make the yuan a global force, and has made significant efforts to do so in recent years. For example, the Chinese government launched the Cross-Border Interbank Payment System (CIPS) in 2015 to facilitate cross-border payments in yuan. Three years later, in 2018, it launched the first yuan crude oil contracts.
Currency
It has also become the world’s largest creditor, lending to dozens of developing countries (a list that includes Argentina). And it is creating a digital yuan validated by its central bank. Thanks to these efforts, the yuan is now the fifth most traded currency in the world. That’s a phenomenal increase from its 35th position in 2001. And it’s now also the fifth most used currency for global payments, up from 30th place in early 2011.
However, the ratings can be misleading. The average trading volume of the yuan is still less than a tenth of the US dollar. Furthermore, almost all transactions were made against the dollar, with few transactions against other currencies.
And when it comes to global payments, the yuan’s real share is only 2.3%, compared to 42.7% for the dollar and 31.7% for the euro. The yuan also makes up less than 3% of world foreign exchange reserves, compared to 58% for the dollar and 20% for the euro.
Green
The dollar has reigned as the global currency for decades, and concerns about how that benefits the US and hurts emerging markets are not new. The value of the dollar appreciated significantly against most other currencies in 2022, when the Federal Reserve raised rates of interest. And it had negative consequences for the residents of almost all countries who borrow in dollars, pay for imports in dollars or buy wheat, oil and other commodities, which have become more expensive.
After Russia invaded Ukraine in early 2022, the United States and its allies imposed sanctions on Russia, including reducing access to the global dollar payments system, SWIFT. They used the dollar as a weapon. But Russia began receiving payments for coal and gas in yuan, and Moscow increased yuan holdings in their foreign exchange reserves.
Thus, according to Bloomberg, the yuan managed to be the most traded currency in Russia. And other countries saw an opportunity to lessen their own dependence on the dollar. Bangladesh now pays Russia in yuan for the construction of a nuclear power plant. France is accepting payment in yuan for liquefied natural gas purchased from China. And a Brazilian bank promotes yuan accounts, as has been the case for a few days in our country as well.
China still lacks the deep and free financial markets required to make the yuan a major global currency, but the way is laid.
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