The momentum towards free trade, Asia’s growing wealth and the space for an international financial centre in this time zone, will help China cement its status as the region’s dominant economy but ensure there will be no European-style financial integration, JCI President Professor Woo Wing Thye argued in a recent lecture at Sunway University.
Finding more similarities with the North American Free Trade Area, which groups together the United States, Canada and Mexico, rather than the countries of the European Union and their single currency, Professor Woo said China’s economy was likely to become so large it would dominate the region.
By 2050, he estimated China’s economy would be worth $20.7 trillion while Japan’s would be just a third the size. That would deter many from seeking to join China in a single currency and encourage individual countries to maintain national currencies to provide the tools for them to manage their own economies. China’s future dominance, and its status as the world’s creditor, also gives the country an opportunity, providing it moves quickly, to turn the Renminbi into the world’s third international vehicle currency and transform Shanghai into a financial centre to rival London and New York.
China first signalled its intention to promote its currency internationally five years ago. “I would say China has to do it very quickly, and soon,” he said. “We now have the dollar and the Euro and there’s probably room for one more. When you look at international financial centres there are two. That’s because the cost of operating a financial centre depends on the time of day – London during the New York night and New York during the London night. In between there’s a big gap.
Shanghai looks like the natural one.” Noting how on the verge of the First World War in 2014, Sterling was the world’s international vehicle currency and London the leading financial centre, Professor Woo showed that by 1924 the dollar – which was being used by more and more people for international trade – had displaced Sterling and New York was closing on London. The two cities are now the world’s top financial centres with London the biggest foreign exchange market.
As Asia gets richer, Professor Woo, also predicted the creation of an Asian Monetary Fund and that the still to-be-signed Trans Pacific Partnership and Regional Comprehensive Economic Partnership would develop into a free trade area spanning both sides of the Pacific and across to South Asia.