Report: Yuan could challenge US dollar

This may happen in 5-10 years as China moves up the value chain

WASHINGTON: China's economy is moving up the value chain and its currency could “mount a challenge” to the US dollar in five to 10 years, a congressionally-created commission reported.

Gone were the days when Beijing was content to be the low-end factory of the world, the US-China Economic and Security Review Commission said in its 2011 report to the US Congress.

China's planners were intent on joining the realm of advanced technology products, high-end research and development and next-generation products, the bipartisan, 12-member body said in a 406-page report.

“Similarly, it no longer seems inconceivable that the RMB could mount a challenge to the US dollar, perhaps within the next five to 10 years,” the commissioners said, 10 years after China joined the World Trade Organisation. RMB is short for renminbi, also known as the yuan.
A woman walks past a yuan sign outside a bank in Hong Kong. — AFP

The Chinese authorities were laying the groundwork for internationalisation of the currency via bilateral arrangements with foreign companies and financial centres, particularly Hong Kong, the report said.

Goldman Sachs representatives told commissioners that Hong Kong had been tapped to be China's offshore currency platform “because Beijing would be able to fully control the terms of the market,” the report said. Hong Kong was returned by Britain to Chinese sovereignty in 1997.

More mainland-based financial institutions would be able to issue yuan-denominated bonds in Hong Kong under plans outlined by Li Keqiang, China's likely next premier, during an August visit to the financial centre, the commission said.

It urged the US Congress to mandate a comprehensive White House National Security Council review “to determine the need for changes to address the increasingly complicated and serious challenges posed by China to US international and domestic interests.”

The commission was created in 2000 to monitor national security implications of bilateral trade with China and to make recommendations for congressional action.

William Reinsch, this year's chairman, said he did not expect the yuan to “supercede” the dollar in coming years unless Beijing floated its currency and removed capital controls.

However, “certainly what they're doing in Hong Kong suggests an impending challenge,” Reinsch, president of the National Foreign Trade Council, a private US business group, said in a telephone interview with Reuters.

On the security side, the commission accused Beijing of continued and growing malicious cyber activities. - Reuters