The head of China's second-largest bank has said the United States government should start issuing bonds in yuan, rather than dollars, in the latest indication of the increasing importance of the Chinese currency.
Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB), also said he is exploring the possibility of issuing loans to trading companies in yuan, allowing Chinese and foreign companies to settle their bills in yuan rather than in dollars.
What is the chance of the US issue yuan debt? Unlikely but one of the issues with many merging markets has been that to access capital markets they have had to issue debt in foreign currencies for the protection of the creditor. The borrowing country does not like to do it but they do not have choice. The US advantage has always been that as a reserve currency they have been able to issue debt in dollars. The cost of switching would be significant.
The issuing of loans in yuan is a natural course for further integration of the yuan in the global economy as a currency that can be traded. This is a natural development and has no impact on the dollar, but it does have longer-term implications for currency trading. This will shift financial power more to the Far East.
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