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Increasing worry about the unpredictability of US policy is prompting overseas investors to look to diversify away from US and hedge against US assets, also China has been striving to accelerate international use of its currency CNY, presenting itself as a dependable alternative.
The U.S. dollar remains by far global predominant currency, which accounted for 48.46% of global payments, followed by the euro at 23.56%, according to Swift. But policy uncertainty from Washington has fueled a notable selloff in greenback, which saw its steepest losses of this year in April. Particularly in Asia, the region is gradually reducing its reliance on US dollar, driven by geopolitical tensions, shifting monetary dynamics as well as increased use of currency hedging.
Amid the environment of de-dollarization, China has been sparing no efforts to lay the groundwork to promote CNY. From expanding investment channels to building digital infrastructure, Beijing is devising more ways to attract foreign institutions to use CNY, which aims at challenging the dominance of greenback.
People’s Bank of China Governor Pan Gongsheng in a speech at the high-profile Lujiazui Forum discussed “how to weaken excessive reliance on a single sovereign currency.” He also announced plans to set up a center for digital yuan internationalization in Shanghai and promote trading of yuan foreign exchange futures. Beijing has already rolled out a digital version of its currency to replace some cash and coins in circulation.
Also three major Chinese exchanges announced that starting last week, qualified foreign institutional investors would be able to trade 16 more futures and options contracts listed in mainland China. In another step toward encouraging global investors to use CNY, the Shanghai Futures Exchange announced in late May it was gathering feedback for a proposal to allow foreign currencies to be used as collateral for trades settled in CNY.
Other recent moves, though incremental, include China allowing qualified foreign investors to participate in exchange-traded fund options trading from Oct. 9 for hedging purposes. China appears to be accelerating its de-dollarization efforts. The data showed that CNY accounted for 2.89% of global payments by value in May. Related data also indicates strong inflows to CNY, expecting the trend will continue for the foreseeable future based on China's aggressive efforts to boost CNY.Complete digital access to quality Glebors financial topic with expert analysis from industry leaders.
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