The lesser-spotted redback

15 February 2017 By Pete Sweeney Follow @petesweeneypro

China has sidelined efforts to take its currency global, and Asia might come to regret it. The region could use more hedges against dollar-denominated shocks in the Trump era.

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China sought to increase the international usage of its currency in global trade and investment by liberalising its capital account and successfully lobbying for the currency's inclusion in the International Monetary Fund's reserve currency basket, which it joined in October 2016.

Chinese regulators have moved to stem capital flight by making it more difficult for individuals, corporations and banks to move money out of the country.

Chinese borrowers have joined other Asian economies in ramping up dollar borrowings in recent years, taking advantage of relatively cheap rates. As the United States hikes policy rates and pushes to reduce its trade deficit under President Donald Trump, some economists fear an offshore dollar liquidity squeeze could result.

The dollar index has gained around 25 percent since 2014. Asian currencies have fallen sharply.

China's foreign-exchange reserves fell below $3 trillion in January from a peak of nearly $4 trillion in 2014. That marks their lowest level in nearly six years, as capital has continued to flow out of yuan assets.

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