ANALYSIS - China's aim is dominance for the Yuan

By Ahmet Goncu

- The writer is a teaching assistant at Xi’an Jiaotong Liverpool University in Suzhou on China's east coast

SUZHOU, China

China’s ascension and the struggle with the United States has forced the Chinese state to try to change the America-dominated world economic order. But can China change the U.S. position of the dollar being the world's currency reserve?

The answer is simple: Not now, but yes in the long term. China's present state policy is not to position the Yuan in the global reserve position, it is to use the Yuan in global trade and finance in harmony with economic growth to make it the all important currency.

China's involvement demands a fresh definition of the global finance system. The Chinese state has no intention and need to control the total system, but aims to put the Yuan among the most important currencies and at the center of global trade.

China seems to give priority to using its own currency in bilateral trade, rather that imposing the Yuan as reserve money. And following last week's deal between Turkey and China, both countries will begin to use more local currencies in bilateral trade.

Though the deal is seen as a small step, it is actually an important and strategic move. If China, Russia and Iran give strong support to this action, we will see what comes out of Pandora’s Box and whether it causes a snowball effect in the medium term.

- The United States' biggest power is that the dollar is the reserve currency

The main power of the U.S. is to control global markets through reserve money -- military, politics and all other factors are secondary. In fact, if the U.S. dollar was not the reserve currency, America would not be able to finance any of its wars by lending money with low interest rates.

If we ask why the U.S. shows great interest in the Middle East and other energy economies, the answer is not because America imports oil from these countries as first comes to mind. The U.S. produces a great amount of oil, and its oil imports are not so big as to need such energy-based economies. The main reason for U.S. interest in this area is to secure the position of the dollar as the main currency of international commodity and the oil trade.

Differences in the Russia, U.S. and Chinese military sectors are less significant than the capacity to control the global finance system. That means that the U.S. is not leading the world with military power or political influence, but with controlling money and the international financial system.

In this context, China's leadership wants to hit the U.S. by offering the Yuan as an important international currency -- a major concern for the U.S. administration.

The effort to make the Yuan one of the world's most important global currencies has been accelerating since 2009.

That year, China offered dim sum bonds -- bonds issued outside of China but denominated in Chinese renminbi -- on the Hong Kong stock market and then continued to support the market with more investment instruments.

The Yuan thus became the eighth most popular global currency in 2013, increased to fifth in 2014 and became the second in global trade in 2015.

- Options for U.S. president-in-waiting Donald Trump

While China is rapidly topping the global currency index, its sole obstacle to total dominance is for the Yuan to attain a convertible currency position.

After completing this action (most probably within the next five years), the Chinese currency will get a second bounce on global markets.

The second important move in this context is for China to press for using the Yuan in the import of raw materials. Moreover, if the U.S. continues its current Middle East policy, the states in the region can easily be convinced by China to use the Yuan. This trend is being strengthened as Russia is grabbing the leading role in the region from the U.S.

If we look at the bigger picture, the Turkish-Chinese agreement to use local currencies can thus be seen as a step that can cause serious results.

Given this, the situation for the new U.S. leader becomes clearer -- the incoming administration is trying to defeat China's superior position.

For now, they have two options -- to clash fiercely with China (and even risk conflict), or to accept the rise of China (as the United Kingdom did) and try to take maximum economic benefits from the situation.