Faltering confidence in the US dollar has handed China a “golden window of opportunity” to promote the global use of its currency, according to a former head of the Chinese central bank.
“The core driving force behind the current changes in the international monetary system is the United States’ own policy choices,” Zhou Xiaochuan was quoted as saying in a report published on Sunday by the New Economist, a Chinese think tank.
He cited the broad application of American tariffs, the frequent use of the dollar in sanctions, and geopolitical conflicts as factors that have eroded the US currency’s global credibility.
“The current period is a golden window of opportunity for promoting the internationalisation of the renminbi,” Zhou was quoted as saying at the Shanghai Currency Forum earlier this month, using the official name of China’s currency.
Zhou, who was the longest-serving governor of the People’s Bank of China, having held the position from 2002 to 2018, laid the foundation for the yuan to go global by officially introducing it for cross-border trade settlements in 2009.
Addressing key theoretical hurdles to the yuan’s internationalisation, Zhou argued that China’s trade surplus was not a barrier to currency exports, as the yuan could still be supplied to global markets via capital accounts and foreign loans. He also suggested that China did not need to match the massive debt issuance of the US to be successful, as actual global demand for reserve currencies is far lower than the total stock of US Treasuries.
Nonetheless, a supply of safe, convertible and liquid assets remains crucial for yuan internationalisation, Zhou noted.