Chinese policymakers see the global energy transition as a path to strengthening the yuan. China’s currency is used in key commodity markets that are essential to the decarbonization process.
While the US dollar dominates global finances, especially commodity markets, China sees an opportunity for the yuan to appreciate: the shift to renewable energy. This is according to Zongyuan Zoe Liu, a China specialist at the Council on Foreign Relations, who drew attention to the development of key resources critical to green technologies, such as electric vehicle batteries and wind turbines.
An opportunity for China
“These policymakers and scientists see the ongoing energy transition as an opportunity for the nation to raise its global position in commodity markets; for them, there is no guarantee that the US dollar’s dominance in our current fossil fuel-driven global economy will continue in a decarbonized world,” Liu wrote in Noema magazine.
This is because China is the dominant supplier of resources needed to transition to a green economy, such as rare earth minerals and critical metals such as cobalt.
Prices in yuan
To take advantage of this, the country has set up a number of commodity exchanges where prices are quoted in yuan. These include the Bautou Rare Earth Products Exchange in 2014 and the Ganzhou Rare Metals Exchange in 2019. In a similar vein, authorities have also established yuan-denominated exchanges focused on oil and copper, another metal used in green energy, as well as other industries.
However, despite this progress, Beijing remains concerned about its heavy dependence on the US dollar for pricing and settlement of commodity contracts, Liu added. To this end, the country has also turned to multilateral partnerships.