The rising de-dollarization trend is now gaining immense traction globally, with leading nations shunning the US dollar to opt for their currency alternatives. This development has led the US dollar to encounter violent fluctuations and volatility, weakening its price by a notch. At the same time, the world has found new use cases for the Chinese yuan, helping the internationalization of the Chinese currency on a whole new level. Will this new use case help the yuan gain global popularity, fame that directly challenges the US dollar’s prestige and valuation? Let’s find out.
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De-Dollarization: A New Use Case for Chinese Yuan Is Here
13 major economies, including ASEAN, South Korea, China, and Japan, have now found a new use case for the Chinese Yuan. This new usage includes a new emergency funding tool that makes use of the Chinese Yuan as the leading currency for funding emergencies for other nations.
This new rapid financing scheme is called Chiang Mai Initiative Multilateralization (CMIM), a currency swap system established between China. South Korea, Japan, and ASEAN nations. The CMIM was born out of the Asian financial crisis of 1990, under which countries could avail emergency financial funds if they were battling balance of payment issues or short-term liquidity crises.
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Earlier, these emergency funds were often swapped in US dollars, considering the weight and mettle that the currency emanated as a reserve asset. However, in a recent CMIM meeting held in Milan, Italy, a new decision has been made where these emergency payouts would now be delivered in Chinese yuan, giving USD a major setback. This development also adds fuel to the rising de-dollarization narratives, weakening the American currency further.
In a new CMIM announcement, a joint statement was released. The statement solidified the usage of Chinese Yuan and other regional currencies as leading financial lending tools for the CMIM system.
“Enhance regional resilience by offering members timely. Access to emergency financing during urgent balance of payments needs in response to sudden exogenous shocks. Such as pandemics and natural disasters.”
What Does It Mean for the Chinese Currency?
Analysts at Standard Chartered Bank have heralded the move as relatively positive for the yuan’s internationalization.
“Yuan’s inclusion in the CMIM system reflects growing acceptance of the currency. On the global stage, and marks a step forward in its internationalization.” Said Ding Shuang, chief Greater China economist at Standard Chartered Bank.
China’s central bank governor, Pan Gongsheng, also shared his stance on the inclusion of the Yuan in the CMIM scheme.
“A breakthrough in diversifying the international monetary system in the region” amid a period of global uncertainty.”
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