China’s ambitious strategy to counter US hegemony

According to sources of Bloomberg, instead of closing at 23:30 according to Chinese time, the market is being planned to close at 03:00. This would still be a different time than usual in the forex market, where the crosses trade 24 hours a day. According to several analysts, such as Ju Wang, from BNP Paribas, this is a measure that China is planning to be able to better serve a demand for its currency that is growing more and more.

China’s efforts to defend the yuan would come in a year in which the Chinese currency depreciates 5% against the US dollar, while the People’s Bank of China maintains a monetary policy strategy focused on increasing stimulus (in recent days it has reaffirmed its commitment to maintain this policy), at the same time that the US Federal Reserve (Fed) moves in the opposite direction, something that tends to benefit the dollar.

Of course, from the lows of the year, which were seen on May 13, the yuan has appreciated 1.46% against the dollar, to 0.149 dollars in which it currently moves.

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Strengthen the Yuan

The second part of the plan, creating a common reserve fund with the Bank for International Settlements (BIS), along with five other central banks, to provide liquidity to participating economies in times of market stress, could pave the way for that the yuan will play an important anchoring role in the Asia-Pacific region, according to analysts.

The People’s Bank of China (PBOC) announced on June 25 that it authorized the implementation of the new Renminbi Liquidity Arrangement (RMBLA) during the BIS’s annual meetings, held last weekend. The new agreement, which could be used in periods of future market volatility, initially includes the central banks of China, Indonesia, Malaysia, Chile, Singapore, and the Hong Kong Monetary Authority.

Each participant will contribute a minimum of 15 billion yuan ($2.2 billion), creating a pool of reserves at the BIS, according to a statement from the Swiss-based financial institution, owned by central banks. They will also have access to additional funding through a collateralized liquidity window, which allows participating central banks to make additional loans using their existing holdings as collateral.

The PBOC noted that the deal will help meet reasonable international demand for the yuan and contribute to the regional financial security.

Recent Western sanctions on Moscow, including the exclusion of major Russian banks from the SWIFT system and the freezing of Russian central bank assets, have served as a wake-up call for Beijing. So financial regulators have beefed up the Cross-Border Interbank Payments System, an alternative to SWIFT, and are looking into cross-border use of the digital yuan, as well as increasing the use of the Chinese currency in foreign trade and investment settlement.

Similarly, at a time when the US Federal Reserve is accelerating the pace of rate hikes and balance sheet reduction, and the international financial market faces the potential risk of large fluctuations, the establishment of this The agreement not only contributes to improving the capacity of emerging economies, but also represents the latest advance in the internationalization of the renminbi.

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