Trump’s policies make a fully convertible yuan by 2020 impossible, say financial experts

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Industry watchers say a stronger dollar and Beijing’s strict capital controls will slow the pace of internationalising the Chinese currency

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Trump’s policies including tax reforms and interest rate rises aimed at boosting the American economy are likely to strengthen the US dollar against the yuan. Photo: Washington Post

Enoch Yiu

Published: 1:30pm, 11 Jan 2018Updated: 12:54pm, 12 Jan 2018

Donald Trump’s second year in office may prevent China from achieving its target of allowing the yuan to become fully convertible by 2020, according to industry watchers.

The US president’s economic policies including major tax reforms and interest rate rises aimed at boosting the American economy are likely to strengthen the US dollar against other currencies including the yuan. And that may slow down the process of internationalising the Chinese currency, explains Aidan Yao, senior emerging Asia economist at AXA Investment Managers.

“China has made it crystal clear that it would like to continue to reform its economy and boost international use of the yuan. The direction of internationalisation of the yuan is clear but the pace of that internationalisation would depend on a lot of social and economic factors,” Yao said on the sidelines of the South China Morning Post’s China Conference on Thursday.

It’s a long way from being used in international financial markets as an investment currency

Aidan Yao, AXA Investment Managers

“A stronger US dollar would lead to depreciation of the yuan, which would create an adverse effect on the internationalisation of the currency. A fall of the yuan against the US dollar, such as what we saw in 2015 and 2016, makes investors less interested in buying dim sum bonds. China would also need to bring in measures to restrict capital outflows.”