It is the monetary equivalent of what Chairman Mao called "bombarding the headquarters". China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market.
The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm.
The reasons driving the upsurge are structural and long-term, said Debra Lodge, a managing director at HSBC in New York.
First, US importers can slash the cost of imports from China by agreeing to trade in renminbi rather than US dollars, Lodge said. Second, a recent surge in the popularity of a host of renminbi-denominated financial market instruments are making it easier for US corporates both to hedge currency risk and to earn an investment return from the renminbi they hold.
Although the shift from greenback to redback is animated by commercial considerations, it also carries a strategic resonance. China’s promotion of the renminbi internationally was impelled by the frustration Beijing felt in 2008 and 2009 as it watched the value of its vast US treasury holdings plunge along with the dollar’s value.
But the ongoing substitution of US dollar export earnings for renminbi earnings is helping to wean Beijing off its reliance on US debt markets. Over time, this is set to free China by degrees from its uncomfortable inclusion in the US dollar zone and boost its financial independence.