Yuan’s trend shows Beijing has ini­tia­tive in trade war

Global Times US Edition - - BIZCOMMENT - By Hu Wei­jia

The US de­ci­sion to la­bel China a so-called cur­rency ma­nip­u­la­tor is likely to push the yuan’s on­go­ing in­ter­na­tion­al­iza­tion.

Al­though China has over­taken the US to be­come the world’s largest trad­ing nation, the share of the yuan in global cen­tral bank re­serves was only 1.84 per­cent in the se­cond quar­ter of 2018, as the US dol­lar re­mains the ma­jor global re­serve cur­rency. China clearly wants the yuan to play a big­ger global role, but the US sees a threat from the yuan’s in­ter­na­tion­al­iza­tion.

The on­go­ing trade war is prompt­ing China to make strate­gic ad­just­ments for a pos­si­ble de­cou­pling of its econ­omy from the US. In that sce­nario, China is likely to re­duce its de­pen­dence on the US dol­lar and push the yuan’s global use. The process of the yuan’s in­ter­na­tion­al­iza­tion is likely to trig­ger more con­flicts be­tween Beijing and Wash­ing­ton.

If the two coun­tries are des­tined to come into con­flict over the yuan’s in­ter­na­tion­al­iza­tion, the odds are: the sooner, the bet­ter.

US Pres­i­dent Don­ald Trump has long talked about la­bel­ing China a cur­rency ma­nip­u­la­tor. It is un­avoid­able that is­sues will sur­face in the process of the yuan’s in­ter­na­tion­al­iza­tion.

Des­ig­nat­ing China a cur­rency ma­nip­u­la­tor has long been an im­por­tant part of US de­ter­rence to slow down the yuan’s in­ter­na­tion­al­iza­tion process. But once the US an­nounced that step, its de­ter­rent force sub­stan­tially weak­ened. Now China can push the yuan’s in­ter­na­tion­al­iza­tion with­out mis­giv­ings.

On Monday, the yuan slip past 7 per dol­lar for the first time since 2008, but it was just a nor­mal mar­ket re­ac­tion to Trump’s lat­est tar­iffs threat. The Chi­nese gov­ern­ment did not ma­nip­u­late its cur­rency and it al­lowed the yuan to fall to re­flect a sup­ply-de­mand bal­ance on the mar­ket. China holds the largest for­eign-cur­rency re­serves in the world. It would be very easy for the gov­ern­ment to sup­port the yuan with its for­eign-cur­rency re­serves, but China didn’t do that. China made full prepa­ra­tions to face a com­plex sit­u­a­tion after the yuan plunged be­yond 7 per US dol­lar.

China’s cen­tral bank re­it­er­ated on Monday that it is con­fi­dent in its abil­ity to keep­ing the yuan’s ex­change rate ba­si­cally sta­ble. There­fore, China dared to give it a try and al­low a free fluc­tu­a­tion on the cur­rency mar­ket on Monday. China’s abil­ity to main­tain eco­nomic sta­bil­ity has been vastly strength­ened, giv­ing the coun­try’s pol­i­cy­mak­ers more con­fi­dence in push­ing the yuan’s in­ter­na­tion­al­iza­tion.

The yuan’s sud­den slump against the US dol­lar on Monday seems to have ex­ceeded US ex­pec­ta­tions and trig­gered a hot de­bate among US ob­servers. This sug­gests China now has the ini­tia­tive in the trade war and won’t be con­tent to only play de­fense. The au­thor is a re­porter with the Global Times. bi­zopin­[email protected] glob­al­times.com.cn

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