Killing the dollar softly: China lobbies ASEAN on yuan use to expand economic influence

The Association of Southeast Asian Nations (ASEAN) and its East Asian partners consider adding Chinese and Japanese currencies to their $240 billion currency swap safety net, business journal Nikkei Asian Review reported.

It said the 10 members of the association along with China, Japan and South Korea will discuss the proposed change to the so-called Chiang Mai Initiative at a May 2 meeting of finance ministers and central bankers in Fiji.

The Initiative, which was established in 2000, is aimed at preventing a repeat of the 1997 Asian currency crisis. Under its framework, countries in financial trouble can access a pool of dollars that can be sold to prop up a falling currency, though it has yet to be used.

Allowing participants to access Asian currencies in an emergency could encourage their use, including in foreign exchange reserves. The inclusion of the Japanese yen and the Chinese yuan in the currency swap framework would reduce Asia's reliance on the US dollar in the event of another crisis.

The move will strongly back China’s push for internationalizing the yuan and expanding its economic influence in the region.

In 2016, the yuan was included in the Special Drawing Right (SDR) basket alongside the US dollar, the Japanese yen, the euro, and the British pound. The move granted the yuan the status of a reserve currency.

According to Qinwei Wang, senior economist at Amundi Asset Management, currency swap arrangements reached by People’s Bank of China with other central banks could be seen as part of “China’s efforts to improve, increase the acceptance of the [yuan’s] internationalization.” Chinese authorities clearly want the yuan to play a bigger global role, he said.

Beijing has been actively seeking to boost the use of its currency in mutual trade settlements with partners, bypassing the US dollar.

The idea of moving away from the dollar in global trade has become a trend lately among countries including Russia, China, Japan, Iran, Turkey, Venezuela, and others.

The governor of the Bank of England (BoE), Mark Carney, said recently the greenback may one day be rivaled by the Chinese renminbi, which is likely to become a major global reserve currency. He was echoed by strategists and economists who say the global importance of the yuan seems destined to rise as flows in the currency will grow over the long term if Beijing continues to gradually open its financial system.

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