The ascent of the Yuan as a global currency is a topic that carries important implications for the developing world. This development has elicited mixed emotions, as it presents both opportunities and concerns.
While the increasing sway of China and the prospect of a more diverse global economy is promising, apprehensions persist regarding the susceptibility of developing countries to economic dependence and instability.
Moreover, the widespread adoption of the Yuan as a global currency may serve as a vehicle for advancing democratic principles in underdeveloped regions. This could be accomplished by fostering transparency and accountability in countries where corruption is rife, as the growing utilization of the Yuan as a global currency has the potential to promote democratic ideals among developing nations. China has already exercised its financial influence to encourage governance reforms in other countries, particularly in Africa.
According to the World Bank in April 2018, China signed an agreement with Senegal to enhance transparency and accountability in the management of the country’s public finance. The measures included enhancing revenue collection, strengthening financial reporting, and improving budgetary planning. Similarly, in Zambia, China played a significant role in promoting transparency and accountability in the mining sector, which has been plagued by corruption and environmental concerns.
However, the use of the Yuan as a democratization tool is not limited to Africa. China has been involved in promoting transparency and accountability in Latin America as well.
In 2019, China signed an agreement with Brazil to promote cooperation and enhance transparency and accountability in public management through capacity-building, technical assistance, and the exchange of experiences.
Encouraging developing nations to adopt optimal governance practices and utilizing the Yuan as a global currency to promote transparency and accountability has the potential to establish a more stable and democratic global economy. The utilization of the Yuan in this manner may aid in mitigating corruption, augmenting public faith in institutions, and stimulating economic progress.
While the Yuan’s increased use as a global currency has the potential to bring about positive change in the developing world, there are also risks associated with overreliance on the currency.
Developing countries that become too dependent on the Yuan could become economically vulnerable to China. For instance, countries that borrow heavily from China to finance infrastructure projects may find themselves in a difficult position if they cannot repay their debts.
In 2017, the Sri Lankan government handed over control of the strategic port of Hambantota to China after it was unable to repay its debts, raising concerns about China’s growing economic influence in the region.
Moreover, China has been promoting the internationalization of the Yuan by signing currency swap agreements with other countries and allowing more foreign companies to issue Yuan-denominated bonds. As a result, the Yuan has become the world’s fifth most-used payment currency, according to SWIFT data.
Nations in the developmental stage and exhibiting an excessive reliance on the Yuan may encounter vulnerability to China’s economic policies. In the event of the devaluation of the Yuan, the economies of developing countries that have borrowed heavily could face significant repercussions. Therefore, it is imperative for developing countries to diversify their economic associations and avoid undue reliance on China.
In addition, the increasing use of the Yuan as a global currency can potentially transform economic relations between developing countries and major powers. The Yuan could enable developing countries to challenge the dominance of the US dollar in the global economy more effectively and negotiate better terms in trade and investment agreements.
For example, using the Yuan as a global currency could enable developing countries to bypass the US dollar in international trade, reducing their exposure to US sanctions and other forms of economic pressure. This would allow developing countries to more effectively pursue their own economic interests and reduce their dependence on the US and other major powers.
Moreover, the use of the Yuan as a global currency could give developing countries greater bargaining power and enable them to negotiate better terms in trade and investment agreements. By offering the Yuan as an alternative to the US dollar, developing countries could secure more favorable deals and reduce their vulnerability to economic coercion.
As the global economy continues to evolve, the use of the Yuan as a global currency will likely become more prevalent, presenting both opportunities and challenges for developing countries. While the Yuan has the potential to facilitate positive change, countries must also be mindful of the risks associated with overreliance on the currency.
Developing nations can strategically position themselves to take advantage of the potential benefits of the Yuan currency while reducing its risks by maintaining a diverse range of economic relationships and managing careful exposure.
The progressively growing employment of the Yuan signifies a noteworthy realignment of power dynamics in the global economy. As developing nations continue to assert their presence and influence on the international stage, the Yuan has the potential to serve as a pivotal factor in empowering these nations to challenge the predominant economic powers and foster a fairer and more inclusive global economic system.
**The opinions expressed in this article are solely those of the author and do not reflect the views or position of The Diplomatic Insight. The organization neither endorses nor takes responsibility for the content of this article and its accuracy.