US and China summit: The clash of currencies
China's currency is making inroads in markets dominated by the US dollar --- even as Beijing manipulates the yuan's value. The US can't buy into Beijing's zero-sum view of the currency markets.
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And Chinese officials, especially after the recent US-led global recession, have touted China’s state-run economy as the new model for other nations.
And yet most international trade is still conducted in dollars. The dollar’s value even rose during the recession despite US troubles; investors (including China) have faith in America as a haven for their money.
But over the past year, China has begun to make sure that the yuan (also known as the renminbi) is used in more and more foreign transactions, such as bond sales and trade credits.
Chinese firms can now use the yuan to buy foreign companies. The Bank of China has offered yuan accounts at its branches in New York and Los Angeles. Even McDonalds and the World Bank have recently sold yuan-denominated bonds.
As a major importer and exporter, China can easily use its clout to demand more use of its currency (something the US does not have to do). It has also demanded changes in international finance organizations to reflect its economic ways.