In the Shadow of US Dollars: The Growth of the Independence of Chinese Currency
In the 14th edition of the “China: In and Out” series, Frank Hong of Longan Law Firm discusses, in his opinion and from a Chinese standpoint, the difficulties faced by countries such as China that have been existing in the shadow of the US dollar in particular. He points out how China is overcoming obstacles of this nature.
In this podcast, Frank Hong discusses how the Chinese Yuan and other currencies have been weakened against the US dollar. He references an article published by The New York Times in 2022 with the headline, “Businesses Brace for Currency Chaos in Asia, a Region With a History of Crisis”:
“In Asia, the trouble facing local currencies has resurfaced the collective trauma of 25 years ago...
“The chaos started in Thailand when the country’s central bank ran out of the dollars it was using to keep its own currency stable and back its loans. It quickly spread to South Korea, Indonesia and other countries as they struggled to cushion their falling currencies.
“By the end of 1997, the International Monetary Fund had arranged more than $100 billion worth of support for Thailand, Indonesia and South Korea to prevent their financial systems from collapsing. The next year, the economies of the countries at the heart of the crisis retreated sharply: 13.7 per cent in Indonesia, 9.7 per cent in Thailand, 6.7 per cent in Malaysia and 5.8 per cent in South Korea. Governments struggled with corporate bankruptcies and political instability.”
This refers to the 1997 Asia Financial Crisis. Analysing from a Chinese perspective, Hong considers that the article suggests that it is naturally inevitable that financial crises will occur, and that the region – ie, Asia, including China – has a unique history of such crisis that means it will certainly be repeated as it is in “currency chaos”. But Hong firmly believes that this is not so, and that such “disasters” are entirely created by humans rather than somehow, and rather absurdly, of their own making.
“As long as the US dollar is at the centre of the global financial architecture, capital account convertibility, notwithstanding all the benefits it may produce to the economic development, is ultimately a ticket to the repeated currency crisis that The New York Times article wrote about.
“To live under another person’s roof, 寄人篱下 in Chinese, is something China is unwilling to accept.” (6:05)
In the shadow of the Chinese currency, yuan
Hong goes on to discuss relations between the US and Saudi Arabia regarding defence, and the bilateral agreement in place since 1974 to only sell oil in dollars, known as the “Petrodollar agreement”. The speaker has strong views from a Chinese point of view with respect to what he calls “protectionist tariff rates” in the EU and US, and with regards to any condemnation over China’s developments when compared with such ongoing fossil fuel arrangements as the Petrodollar agreement.
Hong feels that China has out-performed other countries economically and with respect to renewable energy-source development (specifically solar) over the last 50 years. Certainly in terms of the rate of economic growth, with its various factors, China has positioned itself in a leading role globally.
“The shadow created by renminbi, the Chinese currency, for the Petrodollar is also becoming visible each day.” (10:59)
Oil and renewable energy aside, China is keen to promote using renminbi for trade settlement in a wide range of scenarios. Made-in-China passenger jets are being delivered, the purchasing and leasing of which, in the case of Indonesia, for example, has been settled in renminbi.
“We will see more of these kinds of transactions in all sectors in the coming years.” (12:13)
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