Skip to content
Business
QuickTake

The People’s Currency

relates to The People’s Currency
Updated on
From

China is an economic giant, but its money is still a bit of a runt. Unlike the U.S. dollar, euro and British pound, it’s little used away from home. The No. 1 exporter has kept its currency off world markets in the past and still restricts buying and selling. That's walled off China from boom-and-bust capital flows and kept its goods cheap. Now it has reason to loosen the grip on the renminbi, which means “the people’s currency,” and is better known by the name for its biggest unit, called yuan. To fuel a slowing economy, attract foreign capital and back rising political ambitions, China is promoting the use of the yuan throughout the world, a slow-moving process known as internationalization. It’s one of the biggest changes since the creation of the euro, a beckoning bonanza for bankers and traders — as well as a threat to China’s economic stability and credibility. 

U.S. President Donald Trump has branded China a “grand master” at currency manipulation, a nation that effectively taxes overseas goods by keeping the yuan undervalued. Yet following a surprise devaluation of the yuan in August 2015, Chinese authorities shifted their focus to supporting the currency, burning through $1 trillion, or one-quarter, of foreign-exchange reserves by early 2017 and tightening rules on money leaving the country. After the currency reached its lowest level on record at the end of 2016, its strengthening continued into 2018 as the U.S. dollar weakened and prospects for the Chinese economy brightened. In another sign of how geopolitics can alter priorities, top Chinese officials in April were said to be weighing the potential impact of a gradual yuan depreciation as a tool in any trade war with the U.S., or as a move to offset reduced exports caused by a trade war. Private investors — both Chinese and non-Chinese — can legally move their money in and out of the mainland only through approved programs and in limited amounts. But companies and individuals have found ways to get their funds overseas, with favored methods ranging from buying insurance policies to foreign property. The yuan's fluctuations have continually tested a pledge by the government to give market forces a bigger role in determining the exchange rate. At the same time, the yuan's internationalization has a long way to go: China accounts for more than 10 percent of world trade, but less than 2 percent of global payments are made in yuan. In moves that may signal wider use ahead, President Xi Jinping pledged 100 billion yuan of funding for his “Belt and Road initiative” and central banks in Europe have included China's currency in their reserves.