China’s Yuan: Can it Challenge the Dollar?

China’s Yuan: Can it Challenge the Dollar?

by diplomat_admin

China has long had the ambition of seeing its currency, the yuan, challenge the hegemony of the U.S. dollar. If recent history is any indication, the country is well on its way to achieving that goal.

One of main reasons for its progress toward that goal has been Beijing's willingness to gradually surrender at least some control of the yuan's value to the world market.

For years China undervalued the yuan to make its exports more competitive. It worked, but at the price of provoking major trading partners, like the U.S. and Europe. The issue emerged as a point of contention during the last U.S. presidential race, with Republican candidate Mitt Romney lambasting President Barack Obama for not doing enough to get China to begin valuing its currency more fairly.
China has been more than aware of such criticisms, and it has been responding, albeit slowly. In 2009 it began a pilot program of internationalizing its currency by allowing Hong Kong banks to trade the yuan.

And since then the number of yuan-held deposits in Hong Kong has exploded, from less than 100 billion in the first half of 2010 to about 600 billion in 2013. Also in 2010, China eased the yuan back to a managed float after it established a completely fixed currency in 2008 as an emergency response to the American subprime mortgage meltdown.http://thediplomat.com/pacific-money/2013/02/27/chinas-yuan-can-it-challenge-the-dollar/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+the-diplomat+%28The+Diplomat+RSS%29