China exposure to US dollar ‘weaponisation’ demands rethink on yuan internationalisation as geopolitical woes intensify, Yu Yongding warns
- Securing China’s overseas assets has become more difficult in a time rife with geopolitical wrangling that has altered the world’s currency-use landscape
- While the yuan is positioned to play a ‘bigger role on the international stage’, international monetary system looks to remain dominated by US dollar
Even as Washington’s “weaponisation” of the US dollar is pushing more developing countries to embrace the yuan, it poses such an outsized threat to China’s overseas assets that Beijing must dynamically refine its yuan-internationalisation scheme, according to a prominent economist.
“The security of Chinese holdings has increasingly become a geopolitical issue,” Yu Yongding, a former policy adviser for the People’s Bank of China, wrote in an article on Wednesday.
“The weaponisation of the US dollar has completely destroyed the national credit on which the international monetary system is based,” alleged Yu, who is now serving as academic adviser for the Beijing-backed think tank China Finance 40 Forum.
China slashed US$105 billion, or 11 per cent, of its US Treasury bill holdings in the past year to May, amid amplified concerns over the US freezing US$300 billion worth of Russian central bank assets via sanctions imposed because of the Russian invasion of Ukraine in February 2022.
“Yuan internationalisation is one of the tools, rather than the ultimate goal, to optimise cross-border resource allocation and ensure the security of China’s overseas assets,” said the outspoken economist.
The rise of the yuan’s international status depends partially on the decline of the dollar’s status, while the Russian-Ukrainian conflict has accelerated the process of asset diversification.
