Euro: Strategic autonomy and yuan challenge – Rabobank

⦿ Executive Snapshot

• What: Euroclear is considering accepting China onshore bonds traded in Hong Kong as collateral.
• Who: Euroclear, Rabobank's Global Strategist Michael Every, the EU, and the US.
• Why it matters: This move could enhance yuan internationalization while the EU aims for greater strategic autonomy and increased euro usage in global trade.

⦿ Key Developments

• Euroclear manages over €43 trillion of assets under custody and is contemplating a shift in collateral policy.
• The acceptance of Chinese bonds could support Beijing’s efforts to promote yuan internationalization against the USD's dominance.
• Currently, the euro accounts for only about 6% of global trade in commodity finance through SWIFT, highlighting its limited usage.

⦿ Strategic Context

• The EU's push for strategic autonomy has intensified due to geopolitical tensions, particularly in the energy sector following the Iran War.
• The move comes at a time when the US has politicized USD swaplines, indicating a shift in global financial dynamics.

⦿ Strategic Implications

• This decision may have immediate consequences for euro usage in trade finance, potentially increasing competition with the yuan.
• Long term, it could reshape the geopolitical landscape of currency usage in international trade and finance.

⦿ Risks & Constraints

• Potential backlash from the US, which may view this as a threat to the USD's dominance.
• Uncertainty around the political ramifications of this decision on EU-US relations.

⦿ Watchlist / Forward Signals

• Monitoring Euroclear's final decision on collateral policy and its implications for euro and yuan usage.
• Future developments in US-China relations and their impact on global finance will be critical indicators.