China aiming for ‘de-Americanised world with renminbi replacing dollar
Given the scale of Chinas consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources
China has overtaken the US as the worlds largest oil importer and goods trading nation. Over the next five years, it will surpass the rest of the world combined in its consumption of base metals.
Given the scale of the countrys consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources such as crude oil and iron ore.
The debt ceiling farce in Washington and Chinas growing reluctance to continue underwriting the US economy by buying up its bonds and adding to Americas near $17 trillion (£10.5 trillion) debt mountain suggests that this tectonic shift in the global trade system could be just around the corner.
Chinese state media are already calling for a de-Americanised world. Some experts say that China is plotting to usurp the greenbacks place in global commodities trade. Beijings strategy hinges on quietly encouraging traders to bypass New York through the creation of a network of interlinked commodity markets based in the global financial hubs of Hong Kong and London.
There can be little doubt from these actions that China is preparing herself for the demise of the dollar, at least as the worlds reserve currency, writes Alastair Macleod, head of research at GoldMoney. A further signal that policymakers are beginning to warm to the renminbi playing a greater role in the global economy came last week when Chancellor George Osborne unveiled a historic deal to allow British investors direct access to Chinas markets and allow Chinese banks to expand operations in the UK.
The historic pact will also place the City, already the centre for global metals and foreign exchange trading, at the forefront of the race to capture more business denominated in the yuan.
In the worlds major mining hubs such as Australia, resource companies are already taking advantage of new legislation that allows invoicing and trade settlement directly in renminbi, a process which completely cuts the US dollar out of the equation.
HSBC predicts that the Chinese currency will be the third-largest unit used for trade by 2015 and fully convertible within the next five years as the Peoples Bank of China gradually liberalises policy.
The flow of transactions conducted in RMB [renminbi] will only continue to grow, said Frederic Vilsboe, head of commodity and structures trade finance for Europe, Middle East and Africa at HSBC in London.