The call by Guo Shuqing, chairman of state-controlled China Construction Bank, for the U.S. to issue yuan-denominated bonds can be interpreted two ways. One reading suggests this is another sign of Chinese nervousness about the risk of a plunging dollar further devaluing China’s extensive and already dinged dollar-denominated assets. An alternative view is that this is a another gentle shove of the yuan towards a role as a reserve currency (and China has been talking up a lot of such shoving this year, some of it gentle, some not so much.
Guo’s remarks, which cam in an interview with Reuters, said it was in America’s interests to see the yuan become a currency that is traded across the globe. That is a bit disingenuous; it is more in China’s interest, but given most Americans’ patriotism towards their currency a bit of soft-soft probably doesn’t go awry.
If nothing else, yuan-denominated bonds from the U.S. government and the World Bank, which Guo also suggested, would help develop Hong Kong and Shanghai’s debt markets. China has only recently given permission for foreign banks to issue yuan-denominated bonds, but sovereign debt would be something else again.