Over the last few years, China has made the internationalization of its currency, the renminbi (RMB) or yuan, a high priority. In the wake of the global financial crisis, as global confidence in the US dollar has been dealt a serious blow, China’s calls for the creation of a new global reserve currency have only been intensified. However, as most experts agree that the US dollar will remain the world’s de facto reserve currency for years to come, China seems to have taken a two-part approach to the issue of global currency flows, consistently calling for the replacement of the dollar by a new SDR at the top policy level, while at the same time working on a more private level with many of the countries and territories with which it trades to settle transactions in RMB.
Earlier this year, pilot program to allow exporters and importers were launched in Shanghai, and China’s southern trade hubs Guangzhou, Shenzhen, Zhuhai and Dongguan cities to settle cross-border trade deals in yuan. As Xinhua wrote at that time,
The cross-border yuan trade settlement is undoubtedly a piece of good news for traders and will boost trade among China’s mainland, Hong Kong, Macao and regional trade partners such as the Association of Southeast Asian Nations (ASEAN).
Song Wei, an associate professor with the Financial School at Renmin University, told Xinhua that cross-border yuan trade settlement provided traders with another option and in the long run would boost a more diversified international monetary regime.
Also over the course of the last year, we’ve seen China set agreements about RMB-denominated trade with Hong Kong and complete currency swaps with Argentina, Malaysia, Indonesia, Korea, Belarus and others. However, so far China has not opened up this discussion on a broad scale across the Taiwan strait. However, as ties between Beijing and Taipei become cautiously warmer — although the government of China-friendly Taiwan president Ma Ying-Jeou was dealt a setback in recent local elections — there are signs that cross-border deals will continue to gain momentum, perhaps even to the point of Mainland Chinese being able to invest directly in Taiwan property.