How The Chinese Yuan Is Threatening The Dollar's Hegemony

Soon on top of the pile?
Soon on top of the pile?
Marie Charrel

PARIS — Will the yuan dethrone the dollar one day?

The Chinese currency may have just moved a step further in that direction with the October 10 signature between the European Central Bank and the People's Bank of China (the country's central bank) for the establishment of a "currency swap" mechanism.

The terms of the deal are a bit technical but the goal is simple: facilitating commercial exchanges between the Eurozone and China by giving European banks access to 350 billion yuan (42.4 bllion euros) or "RMD" and giving Chinese banks access to 45 billion euros. The banks will be able to make these sums available to their clients.

"It is the third-largest arrangement of its kind" signed by the People's Bank of China, declared Europlace, an organization promoting the Paris financial marketplace in an enthusiastic statement.

Most of all, this "swap line" shows the willingness of Chinese authorities to internationalize their currency. "Their dream is to see the yuan become as important as the dollar in international exchanges," says Philippe Waechter, economist for Natixis Asset Management. "And they will do whatever they can to succeed."

Their efforts have already bore fruit. Central banks in developing countries (Chile, Nigeria, Thailand, et al) are starting to use the yuan to diversify their reserve currency. "It's a way of reducing their dependence to the dollar and at the same time of reinforcing their relationship with China," explains Claude Meyer, Asia specialist at the Paris Institute of Political Studies.

According to the Bank for International Settlements, the yuan entered last month the top 10 of the most-exchanged currencies in the world. In 2004, it was only in 35th place.

This rapid evolution is surprising since the currency is only partially convertible. Contrary to other currencies, whose exchange rate depends on supply and demand, the People's Bank of China fixes the RMB's exchange rate daily, with maximum variations of 1%.

Beijing started to soften its positioning in the middle of the 2000s. In 2005, the Chinese authorities partially unlinked the yuan from the dollar, pegging it instead to several currencies. But the first major change took place in 2010 when the government authorized companies to use the currency to pay for imports and exports, which until then were paid in dollars. Some 16% of China's exterior commerce is now done in yuan. And according to HSBC, the proportion should reach 30% by 2018.

At the same time, Hong Kong was turned into an offshore financial center to promote the Chinese currency. In 2010, the People's Bank of China agreed to let a subsidiary of Bank of China (owned in majority by the state) manage the international supply of the yuan from the former British colony.

"It is now one of the main sources of Chinese currency for foreign banks," explains Bei Xu, economist for Natixis.

Life-size lab in Shanghai

Still in Hong Kong, some companies are now allowed to issue bonds in yuan to finance themselves. At the beginning, investors rushed to buy these assets as they saw it as a way of benefitting from the progressive value of the currency. But since then, they realized that the finances of Chinese companies lack transparency, and their enthusiasm waned.

This shows that China still has a long way to go to see its currency dethrone the dollar. "Chinese financial markets are still too small and too opaque," Meyer says.

Foreign companies still need to get a license from the government before they can be traded on the market in Shanghai and Shenzhen; and even then, they can only invest up to $3 billion. "Beijing fears that too fast a liberalization of its market will lead to speculative operations, such as the ones that take place on the stock markets of São Paulo or Mumbai," Bei Xu explains.

But most of all, the yuan can only become a reference currency when it is fully convertible. China is still proving its pragmatism. Such a move will first be tested in Shanghai's free-trade zone, an 11-square-mile area that was inaugurated on September 29. This life-size laboratory will enable the authorities to try out several market-opening reforms such as the liberalization of interest rates from January 2014.

Still for some, enthusiasm is muted. "It's still unclear what the project is, because it seems difficult to liberalize this zone without extending it to the whole of China," Bei Xu admits.

In any case, the rise of the yuan will also depend on the dollar's evolution. "As long as the United States is the first financial power, the dollar will remain the reference currency for investors," Claude Meyer reckons. In 10 or 15 years, he says, the balance of power between the two could be reversed. But the United States will do all that it can to stop it.

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How Thailand's Lèse-Majesté Law Is Used To Stifle All Protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

Pro-Democracy protest at The Criminal Court in Bangkok, Thailand

Laura Valentina Cortés Sierra

"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.

Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.

But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."

Criticism of any 'royal project'

The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.

In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.

photo of graffiti of 112 crossed out on sidewalk

Protestors In Bangkok Call For Political Prisoner Release

Peerapon Boonyakiat/SOPA Images via ZUMA Wire

Freedom of speech at stake

"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."

The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.

The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.

Juthatip Sirikan speaks in front of democracy monument.

Shift to social media

While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.

The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.

Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".

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