Just in case you started to believe that China’s economic growth is a delusion, today the New York Times, along with other media, reports that China’s yuan has been approved by the IMF as a “Main World Currency.” This could truly be called “One Currency, Two Realities,” because the fact is that, just because some guys behind three letters decide it, the sky is still blue (unless you live in China, of course). No, the yuan is not a “Main World Currency,” and it’s gonna take one or two more dynasties if those guys at the CCP really expect that to happen. But of course, this is the right occasion to boast about the “Chinese Dream” and the amazing benefits of socialism.
As an article published in Quartz explains, “the yuan hasn’t truly become much more widely used than the Norwegian kronor.” In fact, as it’s always the case, China merely survives because it has a financial cushion with a lot of air within: Hong Kong.
According to the IMF data, the yuan is now the fifth most used currency in the world for international payments. But when we look closely, we discover that almost 70% of those Chinese international transactions are done in… surprise! Hong Kong!
Share of international yuan transactions by value (Image from qz.com).
So, let’s see. According to Chinese authorities Hong Kong is part of China, so they are doing… international transactions with themselves? Of course, when it is about money, Hong Kong functions as a foreign country: you open a Foreign Investment Enterprise there so you can avoid laws against private entrepreneurship in China, and then claim that Chinese economy is amazing because your company has washed up a lot of funds through Hong Kong. Makes total sense.
In case you haven´t yet, please check my article on Mises vs. China, where Mises (and the Chinese authorities) debunk the Chinese economic myth, and my review of Yasheng Huang’s Capitalism with Chinese Characteristics, which explains how Chinese companies take advantage of Hong Kong’s almost libertarian economy. You can also take a look at Milton Friedman’s Free to Choose, episode 1, “Power of the Market,” where he explains how even in the early 1980s Chinese was surviving by sponging on Hong Kong.