Yuan banknotes

The People’s Bank of China is building a yuan reserve with five other nations in collaboration with the Bank for International Settlements.

The countries China is teaming up are Indonesia, Malaysia, Hong Kong, Singapore, and Chile. Each of the countries will contribute 15 billion yuan — about $2.2 billion — to a Renminbi Liquidity Arrangement, China’s central bank said in a Saturday statement.

A Business Insider report said:

“When in need of liquidity, participating central banks would not only be able to draw down on their contributions, but would also gain access to additional funding through a collateralized liquidity window,” the bank said.

The funds will be stored with the Bank for International Settlements.

The announcement follows Russia and China’s endeavor to develop a new reserve currency with other BRICS countries, President Vladimir Putin announced last week.

The basket of currencies would present a U.S.-dominated IMF alternative, and include contributions from Brazil, Russia, India, China, and South Africa.

World’s Largest Foreign Exchange Reserve

Meanwhile, last month, China’s foreign exchange reserves — the world’s largest — grew for the first time in 2022, state data shows. The nation’s reserves rose by $80.6 billion to reach $3.13 trillion.

At the same time, the US dollar has hit a 20-year high in recent weeks.

And, in March, reports emerged of a Saudi oil deal priced in the yuan. An economist told Insider that a deal done without dollars could signal unease in relying too heavily on the U.S. currency.

“While any deal would be symbolic, the Chinese are not alone in the search for a non-dollar reserve currency,” Aleksandar Tomic told Insider previously. “Other countries’ need for dollars exposes them to the U.S. financial sector, and consequently gives the U.S. political leverage.”

Russia And China Are Brewing Up Challenge To Dollar Dominance

Russia is ready to develop a new global reserve currency alongside China and other BRICS nations, in a potential challenge to the dominance of the US dollar.

Russian President Vladimir Putin signaled the new reserve currency would be based on a basket of currencies from the group’s members: Brazil, Russia, India, China, and South Africa.

The dollar has long been seen as the world’s reserve currency, but its dominance in share of international currency reserves is waning. Central banks are looking to diversify their holdings into currencies like the yuan, as well as into non-traditional areas like the the Swedish krona and the South Korean won, according to the International Monetary Fund.

“This is a move to address the perceived US-hegemony of the IMF,” ING’s global head of markets Chris Turner said in a note. “It will allow BRICS to build their own sphere of influence and unit of currency within that sphere.”

Russia’s move comes after Western sanctions imposed over the Ukraine war all but cut the country out of the global financial system, curtailing access to its dollars and putting pressure on its economy.

“The speed with which western nations and its allies sanctioned Russian FX reserves (freezing around half) no doubt shocked Russian authorities,” ING’s Turner said.

“The Central Bank of Russia effectively admitted as much, and no doubt some BRICS nations — especially China — took notice of the speed and stealth at which the US Treasury moved,” he added.

Those sanctions have likely encouraged Moscow and Beijing to work on an alternative to the IMF’s international reserve asset, the special drawing rights, Turner suggested.

While it’s not a reserve currency, the SDR is based on a basket of currencies made up of the US dollar, the euro, the British pound and Japan’s yen — as well as China’s yuan.

One possibility is that the BRICS basket currency could attract the reserves not just of the group’s members, but also countries already in their range of influence, he suggested. These include nations in South Asia and the Middle East.

Russia has seen its currency the ruble rebound to above its pre-war level, thanks to central bank support, after it plunged 70% in less than two weeks after the Ukraine invasion. It has risen 15.2% in June to 1.87 cents. Meanwhile, the yuan has held steady at around $0.15 over the same period.

U.S. Eyes Biden, Xi Meeting Next Weeks

A Reuters report said:

U.S. President Joe Biden and Chinese President Xi Jinping are expected to speak in the next few weeks, U.S. national security adviser Jake Sullivan said on Monday, citing growing convergence among NATO and G7 members about the challenge China poses.

U.S. And Allies Are Scrambling To Respond To China’s Moves In The Heart Of The Pacific

Another media report said:

In the five months since one of President Joe Biden’s top advisers warned that the Pacific was likely where the US could see a “strategic surprise” from China, Beijing has stepped up its overtures to the small but important islands of the region, prompting the U.S. and its allies to scramble in response to growing Chinese influence.

Kurt Campbell, the coordinator for Indo-Pacific on the National Security Council, told a think-tank audience in January that such a surprise — consisting of “basing or certain kinds of agreements or arrangements” — was a top concern “over the next year or two.”

China has security-related agreements with Pacific island countries, largely focused on law enforcement — Australia and New Zealand have similar relationships — but the deal with the Solomon Islands is seen as broader in scope and as coming at a time of higher geopolitical tension.

“The Pacific needs genuine partners, not superpowers that are super-focused on power,” Fiji President Frank Bainimarama said on May 30, adding that after an “excellent meeting” with Chinese Foreign Minister Wang, Fiji sought “stronger Chinese commitment” to trade and environmental issues.

China’s economic growth and military investment since the 1990s have given it the ability to begin countering the US military in the Pacific island chains, long been seen as defensive lines against the Soviets and now the Chinese.

New Zealand said in 2021 that a Chinese base “in the Pacific would fundamentally alter the strategic balance of the region,” Brady said at the May event.

Australia’s chief of joint operations, Lt. Gen. Greg Bilton, said in March that Chinese navy operations in the Solomons would “change the calculus” and prompt Australia’s military to change its day-to-day operations, patrolling patterns, and maritime awareness activities.

In addition to providing better awareness of activity in the region, a more consistent Chinese military presence in the Solomons is “bound to have a political effect on the thinking of leaders in those island areas about the importance of maintaining good relations with China,” Timothy Heath, a senior international defense researcher at the RAND Corporation, told Insider in April.

The US and its allies have mounted a flurry of efforts to counter China’s inroads. The U.S. said in February that it would reopen its embassy in the Solomons, which was closed in the 1990s. Australia’s foreign minister has made multiple trips to the region in since taking office in June.

US military leaders have repeatedly underscored the importance of the Pacific Islands to their operations, particularly has they try to disperse their forces to counter the growing reach of China’s arsenal. The US has stepped up efforts to renegotiate the Compacts of Free Association, its unique defense agreements with Palau, Micronesia, and the Marshall Islands that expire in 2023 and 2024, holding an in-person meeting with the Marshall Islands in mid-June.

The US Navy is looking to strengthen and expand its ties there, with a particular eye toward logistics support, according to Vice Adm. William Merz, who commanded the Japan-based 7th Fleet from 2019 to 2021.

On June 24, the U.S., Australia, New Zealand, the UK, and Japan announced the Partners in the Blue Pacific initiative to support the region “according to principles of Pacific regionalism, sovereignty, transparency, accountability, and most of all, led and guided by the Pacific Islands.”

Heat Turned Up On China-Japan Relationship

Tension between Asia’s two biggest economies is heating up as both countries build up their militaries and boost maritime activity.

On Tuesday, Japan criticized China for sending ships into waters around the disputed Senkaku Islands, which China calls the Diaoyu Islands, in the East China Sea. Tokyo said it was the 11th time this year “Chinese government ships have been spotted entering Japanese territorial waters off the islands”.

But Beijing mostly sends coastguard vessels, separate Chinese warship activities near Japan are more alarming from Tokyo’s perspective.

Three Chinese warships – the Lhasa, a Type 55 guided-missile destroyer, destroyer Chengdu and replenishment ship Dongpinghu – were spotted on Tuesday in the Izu Islands south of Tokyo, according to Japan’s defence ministry.

The Chinese warships had been operating in partnership with five Russian warships since June 12, the ministry said, but there was no confirmation from Russia and China they were coordinating with each other.

Japan was then prompted to send a Maritime Self-Defence Force flotilla to 11 Indo-Pacific countries as part of joint naval exercises with the U.S. and its allies to counter a more assertive China, according to Kyodo news agency.

China has been sending warships to waters near Japan since late last year. In November, a Chinese naval ship sailed in Japan’s waters off its southwestern prefecture of Kagoshima, the first such movement since July 2017, Kyoto reported, citing Japan’s defence ministry.

During exercises in May, the Chinese aircraft carrier Liaoning launched fighters near Japan and the carrier was later shadowed by Japan’s Izumo helicopter destroyer in the western Pacific.

James Bosbotinis, a specialist in defence and international affairs, said Chinese warships were bound to sail deeper into the ocean as the PLA Navy (PLAN) became more advanced.

Besides the island dispute, many new geopolitical factors have added strain to the China-Japan relationship. The ongoing debates in Japan over raising defence spending and potentially developing nuclear-powered submarines will be viewed with concern in Beijing.

Japan hosted the Quad summit in Tokyo late last month with the aim of pursuing a free and open Indo-Pacific. However, the Chinese foreign affairs ministry labeled it “a real threat that destabilizes peace and cooperation by forming a small circle and inciting confrontation”.

Japan has become more vocal in support of the self-ruled Taiwan, an island Beijing sees as a core interest. In June last year, Japan’s deputy defence minister, Yasuhide Nakayama, said in a conference “we have to protect Taiwan”.

According to news reports, Japan is developing its own long-range surface-to-air cruise missile and rail gun-based counter-hypersonic weapon system. It is also modifying the Izumo-class destroyer to operate the F-35B fighter.

Timothy Heath, a senior security analyst from U.S. think tank Rand Corporation, said China was probably sending its ships near Japan to both carry out military training and to send a signal about Chinese resolve and strength.

‘Systemic Challenge’ Or Worse? NATO Members Wrangle Over How To Treat China

A Reuters report said:

NATO’s first new strategy concept in a decade will cite China as a concern for the first time but member states remain at odds over how to describe the country with the world’s largest military and its relationship with Russia, NATO diplomats say.

Both a summit of the G7 in Germany and a NATO summit to follow will tackle China’s deepening ties with Russia, and what is seen as the growing inclination of China to flex its geopolitical muscle and coercive economic might abroad.

The new strategic concept to be endorsed at the NATO summit in Madrid on Wednesday and Thursday will address increasing threats posed by Russia and, for the first time, China, the world’s second largest economy, U.S. officials said last week.

A White House official voiced confidence on Sunday that the document would include “strong” language on China, but said the negotiations were continuing ahead of the NATO summit in Madrid on June 29-30.

NATO diplomats said the United States and Britain have pushed for more forceful language to reflect what they see as China’s increasing military ambitions and growing concern that it could attack the democratically governed island of Taiwan, which Beijing regards as its own territory.

France and Germany – given major European industrial investment in China – meanwhile favor more measured references, said the NATO diplomats, who spoke on condition of anonymity since the document was still being finalized.

One diplomat said a compromise was taking shape under which China would be described as a “systemic challenge”, while including balancing language referring to a “willingness to work on areas of common interest” with Beijing.

Negotiators are in addition fine-tuning how to describe the relationship between China and Russia, with the Czech Republic and Hungary strongly opposed to the phrase “strategic convergence” to define it, one of the diplomats said.

China’s foreign ministry has said the sole purpose of Western assertions about Chinese threats is to contain and suppress China’s development and maintain U.S. hegemony.

Britain recently adopted language describing Russia as an “acute, direct threat” and China as a “strategic challenge.”

The Pentagon’s latest annual report to the U.S. Congress underscored the importance of “meeting the pacing challenge presented by the People’s Republic of China’s increasingly capable military and its global ambitions”.

U.S. officials stressed the importance of including China in NATO’s updated strategic concept, and Australia, New Zealand, Japan and South Korea were therefore invited to the NATO summit for the first time.

The point was to signal that NATO is not “taking our eye off the ball in China” even as it focuses on strengthening Ukraine’s defences, one of the officials said. “It’s firmed up the democratic world on both Russia and China.”

“NATO cannot afford to ignore China,” agreed a European official.

Regarding NATO’s original mission to counter Russian threats to the West, the official added: “NATO’s area of operation is simply north of the Tropic of Cancer. It has no eastern or western limits. So I think it is fair that NATO looks at that.”

G7 Unveils Rival To China’s ‘Belt and Road’

G7 nations are to invest as much as $600 billion into the infrastructure of less-prosperous nations around the world, with the U.S. footing one third of the bill over the next five years. The announcement was made on Sunday in Germany, with the money supposed to rival the Chinese Belt and Road Initiative.

Flanked by other leaders of the G7 group, US President Joe Biden said Western countries were committing to “financing for quality, high-standard, sustainable infrastructure in developing and middle-income countries.” Without mentioning China by name, he said that what the G7 were doing was “fundamentally different because it’s grounded on our shared values”.

China’s says its global infrastructure investments, which are estimated at $2.5 trillion, benefit both itself and the target countries.

Since its launch almost a decade ago, the US and its allies have struggled to offer an alternative to the Chinese program. Last year, during a meeting in Cornwall in the UK, G7 nations announced their own version, named “Build Back Better World” (BBBW) to mirror the domestic plan of the Biden administration that was ultimately shunned by Republicans and some Democrats. BBBW was then renamed the Partnership for Global Infrastructure and Investment (PGII).

“This isn’t aid or charity,” Biden said on Sunday, during his speech in Schloss Elmau in Germany. “It’s an investment that will deliver returns for everyone, including the American people and the people of all our nations,” he said.

The $200 billion commitment from the U.S. is to be covered by a combination of federal government money with private capital from investors like pension funds, private equity and insurance funds. The EU announced its own €300 billion ($317bn) answer to Belt and Road in December last year.

The PGII includes $14 million in support of Romanian efforts to build a small modular reactor (SMR) plant; a $600 million contract to build an undersea telecommunications cable to connect Singapore to France via the Middle East and the Horn of Africa; and a $320 million private development project to build hospitals in Cote d’Ivoire.

Some publications like Politico noted that the Western investment plans were already undermined in terms of combating climate change. While still relevant, they took a backseat due to hiking energy prices and the EU’s plans to decouple from Russia, which led some members to rely again on coal-fired power plants instead.

There is also the issue of high inflation in the US and the EU, which affects the value of the dollar and the euro, potentially reducing the actual impact of the allocated funding in the long run.

Conditions For BRICS Global Reserve Currency

A new international reserve currency based on the BRICS currency basket requires more transactions to be made in national currencies, Russia’s Ministry of Economic Development suggested on Monday.

The reliance on the U.S. dollar and euro also has to be reduced, business outlet RBC quoted a ministry official.

To launch a new reserve currency, it is necessary to build a joint financial architecture, “increase the share of settlements in national currencies, reach a certain level of de-dollarization, something that is happening already in the BRICS countries,” Nikita Kondratyev, of the Department of Multilateral Economic Cooperation and Special Projects of the Ministry of Economic Development, told RBC.

At a BRICS summit earlier this month, Russian President Vladimir Putin said that the BRICS is currently working on setting up a new global reserve currency that would be based on the currency basket of the five nations. Earlier, the bloc said it was working on establishing a joint payment network to abate the reliance on the Western financial system.

Iran And Argentina Apply To Join BRICS

Iran has officially submitted its application to join the BRICS, the foreign ministry in Tehran announced on Monday. The move comes after the Iranian president addressed the BRICS summit last week.

While BRICS is not a treaty bloc, it has a “very creative mechanism with broad aspects,” Iranian Foreign Ministry spokesman Saeed Khatibzadeh said on Monday, according to the Tasnim news agency.

On Friday, Iranian President Ebrahim Raisi addressed the BRICS virtual summit hosted by China, and expressed Tehran’s readiness to share its capabilities and potentials with the group.

Argentina has also applied to join BRICS. President Alberto Fernandez on Friday urged the creation of cooperation mechanisms that could represent the alternative to ostensibly private institutions run by – and in the interest of – the West.

Iraqi PM in Iran After Saudi Visit

Iran and Iraq have agreed to seek stability in the Middle East, Iraqi Prime Minister Mustafa al-Kadhimi said in Tehran on Sunday, a day after he visited Saudi Arabia in a bid to revive talks between the regional rivals to ease years of hostility.

Iran and Saudi Arabia, the leading Shi’ite and Sunni Muslim powers in the Middle East, severed ties in 2016, with both parties backing allies fighting proxy wars across the region, from Yemen to Syria and elsewhere.

On Saturday, Kadhimi held talks with Saudi de facto ruler Crown Prince Mohammed bin Salman in Jeddah that the state news agency SPA said included bilateral relations and “boosting security and stability in the region”.

Kadhimi’s visit comes as a months-long impasse in the indirect talks between Tehran and Washington is expected to break in the coming days to secure a 2015 nuclear pact which curbed Tehran’s nuclear program in exchange for sanctions relief.


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2 Comments

  1. Arun Mukherjee says:

    I enjoyed the article. BUT Hong Kong is not a country. it is a part of China.

  2. Red Robbo says:

    The author is to be commended for not mentioning communism or socialism!

    99 years ago Sylvia Pankhurst wrote: ‘Our aim is Communism. Communism is not an affair of party. It is a theory of life and social organisation. It is a life in which property is held in common; in which the community produces, by conscious aim, sufficient to supply the needs of all its members; in which there is no trading, money, wages, or any direct reward for services rendered’ (What is behind the label? A plea for clearness, 1923).

    ‘Socialism means plenty for all. We do not preach a gospel of want and scarcity, but of abundance. Our desire is not to make poor those who today are rich, in order to put the poor in the place where the rich now are. Our desire is not to pull down the present rulers to put other rulers in their places’ (Socialism, Workers’ Dreadnought, 28 July 1923). Does this sound familar? What follows is almost prophetic: ‘…We do not call for limitation of births..’