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Business/Finance See other Business/Finance Articles Title: Can the renminbi beat the dollar for currency supremacy? Want... China is pushing for inclusion of its currency in the International Monetary Fund's Special Drawing Rights basket, which is due for its five-year review this year. China's planned launch of an international payment system to process cross-border yuan transactions in September will challenge the US dollar's dominance in global trade and help Beijing build a leading role in Asian and global financial markets. The greenback's dominance in global trade and financial markets has begun to weaken because of the currency's co-dependence with US military power, which is seeing structural changes. With a defense budget of US$580 billion and a troop presence around the world, the US has direct influence on global trade, transportation and the distribution of goods and resources. American military power also ensures security at home and creates a safe environment that attracts foreign investment in US assets and bonds and a desire to hold the US dollar, which is accepted in most parts of the world. But fiscal challenges and political warnings in Washington are affecting financing for US forces. That has led to pressure on the military to cut its budget, which could lead to a decline in American influence and credibility around the globe. As a consequence, governments, businesses and individuals have started to diversify risk by holding yuan-denominated assets, which has become a rapidly emerging trend. For the yuan to replace the greenback and become a major reserve currency, Beijing needs to achieve several requirements, including making the yuan a freely traded currency and a currency for investment. The yuan also needs to become an international reserve currency and build a dominant role by accounting for at least 60% of global foreign exchange reserves. In addition, the yuan needs the support of China's economic power, so the country can provide stability during global financial crises and offer a safe haven from foreign exchange risks. A strong military force is also required to ensure the country's leading role and offer a sense of security. It is projected that the yuan may replace the US dollar and become the main reserve currency in the world in 2020. But the continuing development of China's military power depends on China's economy and whether it can maintain healthy growth. China's defense budget stands at US$141.5 billion this year, less than a third of that of the US, but the Pentagon's latest report on China's military said Chinese president Xi Jinping has adjusted the country's policies and is stressing building the economy and the armed forces at the same pace. Although China's slower economic growth will affect the modernization of Chinese forces and subsequently the yuan's ability to challenge the greenback, a recent survey by the Center for Strategic and International Studies in Washington showed a positive outlook for the yuan's rise. The survey conducted among experts in 11 Pacific-Rim countries showed that 53% of respondents said China will become the most powerful country in the region in 10 years, while 43% chose the US. In terms of the most important economic partner in 10 years, 56% responded that it will be China, and 28% said the US. This reflected a general belief that China's currency and People's Liberation Army will pose a challenge to the dominance of the US dollar and its military. With Xi not going head-to-head with the US but building China's geopolitical influence through free trade zones and security cooperation, the Chinese currency and military force will establish positions that rival those of their US counterparts. (Tseng Fu-sheng is an adviser to Taiwan's National Policy Foundation. Translated by Want China Times.) Post Comment Private Reply Ignore Thread
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