Outside of Washington, the world makes way for a rising power and its currency. From Wolf Richter, at wolfstreet.com:
Now even Israel – joined at the hip to the US though the relationship has run into rough waters – has applied to become a founding member of the China-led Asian Infrastructure Investment Bank. Despite US gyrations to keep them from it, over 40 countries, including bosom buddies Australia, Britain, and Germany, have signed up to join. Japan is still wavering politely.
The US government sees the China-dominated AIIB as competition to the US-dominated World Bank and Asian Development Bank. But now that it is clear even to the White House that the US can’t stop the tide, Treasury Secretary Jack Lew backpedaled vigorously on Tuesday. The government would welcome the AIIB, he suddenly said, as long as certain conditions are met, such as adequate transparency.
So after this bruising setback, the US now has another opportunity to oppose China’s financial and monetary ambitions.
China is trying to get the IMF to bestow reserve currency status on the yuan, which would add the yuan to a glorious basket that includes the dollar and the euro – currently the dominant reserve currencies with a 63% and 22% share respectively. So it has been lobbying core members of the IMF behind the scenes for support, and they’re coming around despite US conniptions, the Wall Street Journal reported.
China also wants the yuan to become part of the IMF’s Special Drawing Rights “in the foreseeable future,” Yi Gang, Director of the State Administration of Foreign Exchange and Deputy Governor of the People’s Bank of China, pointed out a couple of weeks ago. With the yuan, SDRs – which currently include only the dollar, the euro, the yen, and the British pound – would “undoubtedly” be more “representative” of the global economic landscape, Yi said.
Numerous countries are already publicly supporting the yuan as a payment currency. Excluding transactions between China and Hong Kong, the yuan’s use as payment currency is still tiny and edged down last year, handicapped also by China’s restrictions on capital flows. But hey, those are minor details. By now, there are 15 yuan clearing centers around the world, including in London, Frankfurt, Paris, and Luxembourg.
And oops, the rebellious city of Los Angeles, in the rebellious state of California, has signed such a deal with the Industrial and Commercial Bank of China late last year, without apparently asking distant Washington for permission. So this is happening, whether the US government wants it or not.