BEIJING: Using the yuan to price major commodities such as oil may be “an indispensable step” in advancing the currency’s global role, and its internationalisation could follow a path of expanding influence from the Global South towards developed markets, says a respected Chinese economist.
“Pricing is a crucial component of yuan internationalisation,” said Huang Yiping, dean of Peking University’s National School of Development.
He noted that the rise of the US dollar as an international currency was closely tied to oil being priced in dollars, followed by oil exporters reinvesting dollar earnings into US treasury markets, forming a reinforcing cycle for dollar dominance.
China, as one of the world’s largest importers of commodities and a leading exporter of manufactured goods, holds structural advantages in playing a bigger role in commodity pricing, Huang said.
Huang was recently invited to join the Group of Thirty, an international financial think tank.
“I think promoting the use of the yuan to price more of our economic activities is both possible and an indispensable step of yuan internationalisation,” Huang said
He added that as China’s weight in global trade grows, counter-parties are becoming more receptive to yuan-based pricing arrangements.
Drawing an analogy from China’s development experience, where progress often began in less-developed areas before expanding more broadly, Huang said that it is “entirely possible” for the yuan to gain wider acceptance first among Global South economies.
These share greater consensus and mutual understanding with China, and it would gradually extend to developed markets.
A recent research note from Deutsche Bank said that the long-term legacy of the current conflict in the Middle East for the greenback could be the way it tests the foundations of the petrodollar regime – globally traded oil is priced and invoiced in the US currency.
Wu Xiaoqiu, former vice-president of the Renmin University of China and a senior financial expert, said the current geopolitical tensions provide both opportunities and challenges to the potential establishment of the “petroyuan”.
Wu added that the key still lies in deepening market-oriented reforms to enable freer trade of the Chinese currency.
Turning to the macroeconomic outlook, Huang said China retains sufficient policy space to cushion from any potential energy shocks.
“China has the policy room – on both monetary and fiscal fronts – to cope with the potential economic headwinds,” Huang said.
Huang added that despite rising global energy prices, domestic inflationary pressure is likely to remain moderate due to a low base and the country’s rapid progress in green energy transition.
However, Huang cautioned that higher energy costs could weigh on corporate profitability and artificial intelligence innovations that use a lot of energy, adding that the lingering uncertainties could disrupt expectations of entrepreneurs. — China Daily/ANN
