Like euro, RMB should end dollar reliance

The European Union had launched a long-term plan way back in 2018 for ensuring wider use of the euro in the global economy to “better protect citizens and companies against external shocks”. The EU is reportedly pushing ahead with a detailed plan to protect the bloc from potential currency shocks by easing its reliance on the US dollar and boosting the euro’s role in the world.

The move can help the EU better manage and control financial risks, and lessen the bloc’s vulnerability to possible US sanctions.

As EU officials said, if the EU wants to enhance the euro’s status in the global economy, it needs to relocate the euro financial service center from London to the EU since the United Kingdom is no longer a part of it.

The outbreak of the novel coronavirus has exposed the vulnerability of the international financial system dominated by the US dollar. Like what happened in the subprime crisis in 2008, the Wall Street crash amid the pandemic has upset the financial system of almost all major economies. Unlimited easing of policies by the Federal Reserve has established it as the de facto last lender of US dollars through currency swap schemes.

It is the EU’s increasing diverging stances with the United States, be it on climate change, the Iran nuclear issue or the EU’s energy cooperation with Russia, that has prompted it to seek financial independence.

It might not be easy for the incoming Joe Biden administration in the US to ease the deep strains in US-EU relations in a short time.

The trade war the US started with China directly affects global supply chains, including EU enterprises.

In the same vein, China, as the country holding the world’s largest amount of foreign exchange in the form of US dollars and treasury bonds, should draw lessons from the EU’s efforts to lessen its reliance on the US dollar. China needs to further consolidate the renminbi’s independence and diversify its foreign exchange reserve.

China needs to establish a renminbi-based valuation and trading system for transactions of staple commodities, encourage the use of renminbi in its trade with the Association of Southeast Asian Nations, its largest trade partner, and promote the use of euro in its trade with the EU, its second-largest trade partner.