Chinese Renmninbi is on the launch pad of being a world currency. The efforts by China to convert it into a hard currency substituting the US Dollar may reach a finishing point at the March end scheduled BRICS meeting at New Delhi.
China already has adopted a clear stand against the US Dollar as the global currency and suggested that Dollar should be replaced by IMF’s Special Drawing Rights.
It is not just the hard currency ambitions that motivate China to provide renmninbi loans to other BRICS countries. The country has a vast foreign exchange reserve of nearly US $ 3 trillion. Investing this money in US securities is a risk now. On the other hand, the quickly growing EMEs including India are fund thirsty and are safe customers. Indian corporate can emerge as large customers of China loans because of the decline of Euro markets.
Besides, if Renminbi is graduated as a world currency, the Chinese controlled Hong Kong can become the world’s financial centre replacing the fast eclipsing London.
The strategy of China to promote renminbi is to provide large volume of renminbi denoted loans to the BRICS entities. Few months back, a consortium of Chinese banks have given loan of $1.2 billion to Reliance industries marking a beginning of Chinese loans to corporate of other BRICS countries. Chinese banks- Industrial and Commercial Bank of China, China Development Bank and Export Import Bank of China, helped to convert its FCCBs into debts by giving loans to India’s largest corporate entity.
The way to convert renminbi as a hard currency is to make renminbi acceptable to large number of trading nations. Efforts by the Chinese government on renminbi loans were formally started at the Sanya BRICS meeting in 2011. The Sanya agreement promotes financial cooperation among the BRICS nations. The meeting was attended by Prime Minister Manmohan Singh, Hu Jintao, Brazil’s Dilma Rousseff, Russia’s Dmitry Medvedev and South Africa’s Jacob Zuma. At the agreement, China has proposed a currency swap or exchange plan by giving credit to other BRICS members in Renminbi.
“Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services,” Prime Minister Dr. Manmohan Singh told news agencies after the Sanya meeting.
The Renminbi loans may be made a big programme in the coming BRICS summit. BRICS peers need money, China has abundant of it. The environment is thus set for a non-zero sum game. Countries like India and Brazil can get big benefit of Chinese funds. China on the other, can boast its super power ambitions.