US focus on yuan's value ignores China's experiments
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But while Hong Kong has emerged as a key node in the emerging transnational yuan markets, China's most recent currency experimentation took place about as far away from the SAR as it is possible to get without leaving China's vast landmass, the remote Xinjiang Uyghur Autonomous Region. The transaction was arranged for an unnamed private company in Xinjiang by the Bank of East Asia (BEA) for an investment in Georgia. This was the first recorded cross-border yuan transaction carried out in Xinjiang, and is a significant achievement for BEA, which only established itself in the region two years ago. This event demonstrates the continued efforts of Chinese economic planners to strengthen and diversify the function of the yuan as an international currency.
Furthermore, while US commentators tend to focus exclusively on the effect of the yuan on Sino-US relations, the Xinjiang deal reminds us that China's monetary policy must reflect the diverse and multi-directional interests of the nation's economy.
The US cannot expect China to base its currency reforms around their interests alone, particularly as China is cultivating its own network of economic partners who demand equal attention in its policy calculus.
Evolving the yuan into a strong global currency is a stated aim of the Chinese government. Without it, China's economic development may be significantly impeded. A stronger yuan will give Chinese entities greater purchasing power in international markets, facilitate economic integration and unlock the full potential of China's service sector, particularly financial services.
The Xinjiang payment demonstrates that the government is exploring multiple options in terms of strengthening the role of the yuan as an international currency. In this case, greater yuan flexibility could facilitate access to basic resources and materials in neighboring Central Asian states.
However, the evolution of the yuan is a process that must be managed gradually and requires a complex matrix of reforms in many different areas, rather than the simplistic approach of sudden revaluation called for by some.
The author is a Beijing-based British freelance writer specializing in Chinese political economy. forum@ globaltimes.com.cn
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