More Chinese financial leadership would benefit the world

Editor's note: Matyas Kohan is a foreign policy writer and deputy head of opinion for the Hungarian news agency Mandiner. The article reflects the author's opinions and not necessarily the views of CGTN.

As China's landmark Two Sessions shapes the reality of both 1.4 billion Chinese and the rest of the world, there is a domain in which many around the world are looking to Chinese leadership. That domain is international finance, a topic to which Chinese President Xi Jinping recently devoted a Qiushi essay. Draft legislation submitted to the Two Sessions this year clearly shows that China is heeding the calls to take action.

The world that lives outside the three large currency zones – the dollar zone, which includes the US as well as the dollarized sectors of the world economy, the eurozone, as well as the emerging Chinese yuan (RMB) zone – has witnessed shifts in the global financial landscape that have reduced decade-old assumptions to rubble.

Although currently overshadowed by the war in Iran, which has temporarily rekindled the old dynamic of the US dollar strengthening in times of global instability and high oil prices, the major trend over the last one and a half years has been a weakening of the US dollar.

This weakening stemmed from a consequential trend: Under the Trump administration, the United States seems to have reassessed what then-French President Charles de Gaulle once called the "exorbitant privilege of the US dollar," and found it less advantageous than previous administrations had.

The US administration has concluded that it wants its currency to behave somewhat more "normally" as a natural equalizer of imports and exports, and it is willing to tolerate, in exchange, a moderate reduction in the weight of the dollar as a currency for international reserves and settlements.

Additionally, recent US steps in the realm of geopolitics – be it Venezuela or Greenland, as well as a rumored Cuba operation – echo the end of American exceptionalism, ushering in the age in which the US thinks of itself as one of the world's superpowers that is entitled to cleaning up its own backyard, rather than a hegemon of an entirely special breed that bears the burden of global security in the physical and financial senses. A new global financial order, in which the RMB plays a role equal to China's in world politics, is in the new global order's interest.

These US steps point toward a more equal distribution of the spoils and burdens of hegemony in the global financial order among the great powers. This is a chance China clearly sees and a challenge to which it seems willing, at last, to rise.

Just as with the "Chinese model" of development, the international financial order is an area of global politics in which there is greater demand for Chinese leadership than there currently is supply.

China, in a way that has served it extremely well in terms of stable, high growth over the last few decades, follows an extremely cautious policy regarding financial openness. The RMB is traded at a level close to equilibrium and fully externally convertible; there is no multiple-exchange-rate regime that would levy implicit burdens on those who earn, save, or invest in China.

However, there is no denying that the RMB's internal convertibility is currently subject to capital control rules that are fundamentally incompatible with its becoming a viable reserve currency or a currency for trade settlements beyond China's own foreign trade.

China's interest in shielding itself from the potential detrimental effects of full internal convertibility conflicts with another Chinese (and, frankly, Global South's) interest: contributing to an international RMB that helps construct a fairer, and, by that token, less dollar-based, global financial order.

The balance between these two core Chinese interests is now ripe for gradual adjustment. The expectation is that the Two Sessions will provide impetus for this readjustment. A strong currency widely used in global trade and investment and serving as an international reserve currency, for example, an RMB that is more freely convertible than the status quo, is a precondition for China to become the "financial powerhouse" that the 15th Five-Year Plan prescribes for it to become.

China cannot build its global financial might without changing how the RMB operates globally. China is preparing to do in the financial realm what it does best: to square the circle, and make the RMB international without compromising on the internal stability and security that the current capital control regime has provided – a priority that remains key in both the government work report and the Five-Year Plan.

The Global South, and more broadly the part of humanity that lives outside the three great currency zones and is thus impacted by the architecture of global finance, is right to recognize the importance of this new Chinese policy.

While the dollar-based international financial system has created stability for those who contributed to the global economy through exports of sought-after goods and services, it has also imposed on developing countries the onerous task of offering an interest rate advantage over the US dollar, making borrowing the least affordable for those who need investment the most.

When the RMB takes up its due place in the global financial order, this wrong might be righted, to the benefit of both China and the world. And in an age when the US itself is reassessing the role of the dollar in the world, this result may come about not as a result of US-Chinese rivalry, but as the natural financial corollary to China's peaceful rise in other domains of the world order.

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