How the Ukraine war could boost China’s global finance ambitions

Sanctions levied in response to Russian president Vladimir Putin’s invasion of Ukraine have dealt a devastating blow to his country’s financial system and left the rouble down more than 30 per cent this year, sending ripples across currencies in eastern Europe.

But the renminbi, the currency of Russia’s closest strategic ally and top trading partner, has remained conspicuously stable.

China’s currency has barely budged since Russia’s invasion began, even touching a four-year high of about Rmb6.31 against the dollar, extending a months-long run of resilience despite a recent slowdown in the growth of China’s economy.

Its relative stability has fuelled talk that the currency could become a haven asset, shielded from the geopolitical turbulence that has roiled markets around the world. This would be a boost to more than 20 years of work by Beijing to globalise its currency by increasing its use in foreign trade and as a store of value in international finance.

“We are in a stage where the market is no longer looking at the renminbi as a highly speculative currency,” said Kelvin Lau, senior economist for Greater China at Standard Chartered, adding that its recent stability was likely to enhance its reputation as a haven in times of stress.

What does this have to do with the dollar and the wider financial system?

Wider usage of the renminbi across the globe would, theoretically, make it easier for China to break what it views as US and western dominance in…

Read more…