By Jason Simpkins
China has been more vocal than ever ahead of tomorrow’s (Thursday’s) Group 20 financial summit, a development that highlights the nation’s dissatisfaction with the dollar, as well as its desire for greater political and economic influence on the world stage.
After questioning the dollar’s viability as the world’s main reserve currency, Beijing recently took another step in its quest to expand the role of its own currency, the yuan, by agreeing to a $10 billion (70 billion yuan) currency swap with Argentina. The deal will allow China to receive yuan instead of dollars for its exports to the Latin American country.
“Beijing has its eye on raising the status of the yuan,” Ben Simpfendorfer, an economist at the Royal Bank of Scotland Group PLC (ADR: RBS), told The Associated Press. “They are the world’s second-largest exporter and the third-largest economy, so it is in their interest to handle trade in the yuan.”
The deal was signed Sunday by Zhou Xiaochuan, governor of the People’s bank of China, and Martin Redrado, president of the Central Bank of Argentina. It eliminates the need for both nations to buy dollars to facilitate cross-border transactions.
“Dollars will not be needed for trade,” said the People’s Daily, the Communist Party newspaper. “This measure will play a positive role in improving regional currency stability, preventing financial risk and reducing the spread of the crisis at this extraordinary time when the financial crisis is growing daily.”
Including the latest deal with Argentina Beijing has signed about $95 billion (695 billion yuan) of currency deals with Malaysia, South Korea, Hong Kong, Belarus, and Indonesia over the past few months.
These deals undermine the status of the dollar as the world’s leading trade and reserve currency, but they also broaden the status of the yuan - something policymakers in Beijing see as being vital to the country’s economic success, particularly in light of the current financial crisis.
“China is affected a lot when the dollar is up and down. Everyone is looking for balance and self-protection,” Zuo Xiaolei, chief economist for Galaxy Securities in Beijing, told the AP. “How can China protect its own interests in the current economic situation? You can’t change the U.S., so you can only change yourself.”
China Disses the Dollar
China has been increasingly critical of the dominant role played by the U.S.
