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YUAN IN THE ASCENDANCY

Pieter Bottelier

Asia Times, May 29, 2009

Since People's Bank of China governor Zhou Xiaochuan's proposal for reforming the international monetary system was published on March 23, there have been new developments with regard to the international use of the Chinese currency, the renminbi, also referred to as the yuan.

The historical context of governor Zhou's proposal and the prospects for the international use of the renminbi are interrelated. In spite of the generally negative press reports in the United States, Zhou's proposal was couched in careful, professional and non-provocative language. Although the proposal may have been partly motivated by domestic politics, it does reflect deep-rooted concern in China that the international financial crisis and subsequent US responses to it could undermine the purchasing power of the dollar.

Since most of China's US$2 trillion plus reserves are invested in dollar-denominated financial assets, Beijing's concerns are understandable. While some in the United States argue that China should not fret about excessive dollar exposure - because that is the result of its controversial exchange rate policy - it should be recognized that China's worries about the future of the US dollar are widely shared and that Zhou's proposal appears to have been well received in many quarters around the world.

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