The promotion of the Chinese Central Bank Digital Currency is linked to Beijing’s resolve to extend the internationalisation of the RMB. Zhou Chengjun, director of the People’s Bank of China’s (PBoC) Finance Research Institute, suggested recently that the PBoC should eventually let go of exchange-rate goals to facilitate greater global use of the yuan.
These comments received firm pushback from Beijing. The PBoC has increased the reserve ratio for foreign currency holdings and set a weaker fix for the yuan. The authorities will be keen to manage the pace of appreciation.
Nevertheless, China is becoming more comfortable with a strong currency. Considering how far China has increased its share of world exports over the past year, this is understandable.
China recorded a current account surplus of $390bn in the four quarters to Q1. The goods surplus hit a record $617bn over the comparable period. Automation and shifting of production towards rural areas (with cheaper workers) will allow China to retain export market share in a range of relatively labour-intensive products.
Indeed, the ongoing deleveraging campaign is being conducted alongside an industrial policy targeting high-technology sectors. The supply-side boost from automation and a shift up the value chain should protect the economy from rising defaults.
