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The Monitor's View

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.

By the Monitor's Editorial Board / January 18, 2011



Too much of what divides China and the US these days, even during their cozy summit this week, relies on a false assumption: That one country must lose at the expense of the other.

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A loss of jobs in the US, for example, is seen as a gain of jobs in China. Or the US Navy’s protecting presence in Asia must give way to a rising Chinese Navy.

Nowhere is that zero-sum way of thinking more prevalent than in China’s attempt to replace the greenback with the redback – or the US dollar with the yuan – in world currency markets.

President Hu Jintao went so far as to tell journalists before his meetings this week with President Obama that the dollar’s dominance in global markets is a “product of the past.”

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.

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