VINACHEM

The world is already moving towards a multicurrency system as financial technologies evolve and China pushes the yuan, economists say.

The global economy is inexorably moving towards a multicurrency system as China’s persistent efforts to internationalise the yuan and technological changes erode the US dollar’s dominant position, economists said at a conference on Monday.

“Trade invoicing in yuan went from zero per cent to 30 per cent in the last 10 years, and half of Chinese capital flows are now in yuan, much higher than before,” said Jin Keyu, an economist who was a tenured professor at the London School of Economics for 15 years, at a panel hosted by US-based think tank Milken Institute.

“The truth is that there has been a slow decline of the dollar in the data, and the non-conventional reserve currencies – even outside of the yuan – have jumped from 2 per cent to 11 per cent,” she added, noting there is “consensus” among economists that the world is heading towards “multicurrency equilibrium” over the long term.

The emergence of alternatives to the widely used Society for Worldwide Interbank Financial Telecommunication (Swift) payment system is a “massive undercurrent” that is accelerating the process of financial diversification, Jin said, adding that the significance of this development was underappreciated.

Several new payment systems have gained traction over the past few years, including mBridge – a central bank digital currency platform built using blockchain technology – and the Chinese-designed Cross-border Interbank Payment System (CIPS).

Beijing has long pursued a strategy of turning the yuan into a global currency to create a stable monetary environment for its own economic development and to reduce the United States’ dominance over the global financial system.

Christian Stracke, president and global head of credit research at the Pacific Investment Management Company, said that the Swift payment system was a “technological relic” and that ultimately there would be a move towards financial “decentralisation”.

The transition is “probably a ways off in the distance, but it’s hard to imagine that it doesn’t happen”, Stracke added.

Huang Qifan, the former mayor of Chongqing, predicted at the International Finance Forum last year that the yuan’s share of global payments would increase by 1 percentage point every year over the coming decade, reaching about 17 per cent by 2035.

As of February, China had issued US$45 billion of offshore yuan-denominated panda bonds, exceeding the volume of Japan’s yen-denominated samurai bonds, according to a report by the Institute of International Finance.
The People’s Bank of China said in a report in February that it had signed bilateral currency swap agreements with more than 40 foreign central banks or monetary authorities.

“There can be headlines around geopolitical tensions, but ultimately the US and China learn from each other, use each other’s tools and innovations – I think it’s a bright spot in terms of the growth [that] we can expect,” said Stracke.

Jin added that China had a role to play in terms of creating more safe assets for investors.

“The fact is there are not enough safe assets,” she said. “France and Germany don’t issue enough safe assets, and there [will either be] a lack of safe assets or China could do it actually.” – Source: SCMP