New Delhi: There is no escape from the US dollar for China even as Beijing propagates a ‘de-dollarisation’ campaign to promote its own currency, the renminbi, to settle payments in international trade and debt repayments.
“China’s export-driven economy is built on access to dollar markets, dollar denominated demand and a global payments and settlement infrastructure that is still overwhelmingly US-centric. For China, a sudden or radical break from the US dollar would not be an act of liberation. It would be an act of self-harm,” according to an article in The Globalist online magazine.
It highlights that the dollar plays the role of the backbone of global finance. This includes full currency convertibility, deep and liquid financial markets, credible legal protections for investors, as well as payment systems that are trusted well beyond one’s own alliance network. China offers almost none of these advantage at the required scale.
The article points out that the renminbi is tightly managed and only partially convertible. Capital controls remain central to how the Chinese Communist Party maintains control over the domestic economy, cushions shocks and sustains politically important sectors that generate overcapacity.
“Simply put, a genuinely global reserve currency cannot be locked inside such a cage. Countries that invoice in that currency, hold it as a reserve or invest in assets denominated in it must be free to move in and out without asking permission from the issuing state. Beijing does not trust the world — or its own citizens — enough to allow that,” the article observes.
The dollar’s global primacy is underwritten by the size, sophistication and liquidity of US capital markets. Foreign central banks, sovereign wealth funds, and private investors can park hundreds of billions of dollars in US Treasury securities and a broad universe of dollar assets with reasonable confidence that they can exit when they wish, the article points out.
For currency rivals of the US dollar, the real challenge is not whether some oil cargoes are priced in another unit, but whether the rest of the world can accumulate and liquidate large positions in your currency without fear of political or financial entrapment, the article states.
(IANS)
