China’s dual-track currency strategy

Its efforts to insulate itself from sanctions in a dollar-dominated world offer lessons for India

- SHYAM SARAN

Over the past several years, Chinese policymakers have struggled to internationalise the Chinese currency, the renminbi (RMB), to rival the US dollar.

Its leaders have been reluctant to allow full convertibility and a market-based exchange rate for fear of volatility and financial risk, which may in turn lead to social and political unrest. Several policy measures over the past five years have promoted the use of the RMB in international trade, finance and cross-border settlement. China has also, in graduated steps, sought greater integration with international financial and currency markets. Its main objective has been to “sanction-proof” its economy against the seizure of its financial assets and exclusion from dollar-dominated payment channels such as the US-based Clearing House Interbank Payments System (CHIPS) and messaging systems like the Brussels-based Society for Worldwide Interbank Financial Telecommunications (SWIFT).