China’s century: ‘More and more economies will want to trade in yuan’
RT:How big of a victory is it for China that its currency has become the second-most used currency in the world, now ahead of the euro. Do you think it will continue growing in popularity?
Daniel Wagner: If you consider that the Chinese government has only allowed a lot of trade, finance with the outside world since 2009 then its status as the No. 2 currency used for global trade finance is very significant, as it's happened in a very short period of time. The reason that it has happened is, as you know, China as the second-largest economy has the largest foreign exchange reserves in the world and certainly is becoming a global power. So this is consistent with its rise to that global power status.
RT:What are the main reasons behind the yuan's growing popularity?
DW: If you consider that China accounts just for just about 15 percent of global trade, then it’s really not surprising that the Chinese government would want to embark in more bilateral trading arrangements that use yuan and that many of its trading partners would also want to do the same. You take governments such as the UK and Singapore, which are doing this on a direct basis, you look at the European Central Bank which has a swap arrangement with China’s central bank, and it seems to be becoming certainly more commonplace that major players in the world economy want to trade directly with the Chinese.
RT:Even as the second most used currency, the yuan is used in only 8 percent of global financial exchanges, while the dollar is used in 81 percent. Do you think the dollar could ever lose its status as the main reserve currency?
DW: The dollar is not going to be under threat anytime soon, taking 81 percent of the global payments system. [Neither] the yuan [or] any other currency do not represent any kind of threat, even a medium-term threat. I think what is likely to happen is that the yuan is going to take a more significant chunk of the global payments pie in due course, but this is probably going to happen sooner than most people think. I wouldn’t be surprised if by the end of this decade the yuan is accounting for 15 percent or 20 percent of all global payments. It’ll certainly happen on a very rapid basis.
RT: China's currently reforming its economic policy to become less dependent on the US dollar – can you tell us about the steps they are taking?
DW: The Chinese government has made it clear that it would like to be less reliant on the US dollar-based trade and in that regard it has talked about making its capital accounts fully convertible by 2015. It is also gradually broadening the band that the yuan is allowed to trade in and that has made the yuan even stronger. It has appreciated some 26 percent since it was first linked to the US dollar in 2005, it’s now approaching 6.0000 to the dollar [it was 6.3000-6.3100 range Monday as trading in the market has been really balanced recently - RT], it used to be around 8.3000 – that’s a very significant increase in a rather short period of time. So I think most people realize that this is China’s century, China’s economy will soon be the dominating economy in the world and it’s a natural link that economies would want to trade in yuan. And the Chinese are going to approve of that.
RT:During the US government's shutdown – when there were fears of America's possible default – China called for the so-called de-Americanization of the world economy. How can it be achieved?
DW: China is not going to achieve the de-Americanization of the world economy by itself, and that’s not going to happen because regardless all of the things that have happened in America in the last five years, the US dollar is still the world’s reserve currency, it is still a destination where most individuals, many countries, many companies prefer to park their assets. I don’t think that it’s a concern for the US economy anytime soon.
I would characterize the idea of de-Americanization of the global economy as a wishful thought on the part of the Chinese government. Perhaps they are having some delusions of grandeur, but if we simply look at the numbers, this is not going to happen anytime soon, there is no threat that’s going to happen. No matter how much the Chinese government may want it to happen, that is simply not going to happen. The yuan, first, must become fully convertible on a capital account, and that’s unlikely to happen until 2015, and the yuan must take an even more significant portion of the global payments system before any concept of the de-Americanization of the global economic system is going to happen. It will be many, many years from now.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.