Breakaway Currencies

We’ve explored nine different scenarios in which we’ve imagined a region has decided to create a new currency. Read more about breakaway currencies or select another scenario from the list below to view in more detail.

In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...

What happens if Inner Mongolia leaves China and creates its own currency?

Breakaway region Inner Mongolia

Parent country China

Old currency Chinese Renminbi (CNY)

New currency New Inner Mongolian Tügürig

Mongolia map image

Financial independence for Inner Mongolia could be the answer for the region’s weak economy, providing the opportunity to develop its manufacturing sector. But would China relinquish that much control?

Why might Inner Mongolia create its own currency?

  • The region is weak and underdeveloped
  • It has suffered from the slow but unquestionable rise in the renminbi which has made exports more expensive
Inner Mongolia is reliant on basic industries such as coal mining. (photo: Herry Lawford / Wikimedia CC BY 2.0)

Why is Inner Mongolia’s position weak?

  • There is heavy economic dependence on commodities: raw materials, as well as agriculture and related products
  • It has a very weak manufacturing export base, reliant on basic industries
  • The region has a relatively low population (25 million) and very low population density (21 / sq km)
  • National industrial policy is focused on other regions
Industrial output by sector 2016   source
Coal mining and processing
Smelting and pressing of metal
Production and supply of electric power and heating power
Processing of agricultural side-line food
Raw chemical materials & chemical products
Mining and dressing of metal
Non-metal mineral products
Petroleum and natural gas extraction
Food manufacturing
Petroleum processing, coke products

What could happen... Inner Mongolia?

The main beneficiaries could be heavy and basic industries. An Inner Mongolian currency is likely to depreciate against the renminbi, so the region could produce cheaper inputs for manufacturing elsewhere in China

It is likely a significant part of the population would move away from agriculture into the high-wage manufacturing sector

The region’s economy would likely grow and living standards could increase significantly China?

The effect on the rest of China would likely be negligible, since the region is relatively small (with less than 2% of the country’s total population)

If the region developed a comparative advantage in basic steel and other, similar industries, it might actually increase China’s competitiveness by producing cheaper inputs

Currency background

Change in value of Chinese yuan (CNY) since 2000, based on SDRs per currency unit   source

Change in value of Chinese yuan (CNY) since 2000

Dr Robert Hancké

“Export-led growth, a classic economic development strategy for poor countries, would become a possibility for the region.”

What would the political impacts be?

Inner Mongolia could become a semi-independent area within China, similar to Hong Kong (‘one country, two systems’)

While China might not prefer an independent currency in Inner Mongolia for political reasons, the economic gains could outweigh the costs to Beijing

Would the pros outweigh the cons?

An independent currency, effectively underwritten by Chinese economic growth through a free trade area, could have tremendous benefits for Inner Mongolia

Why won’t it happen?

The Communist Party of China is very keen to keep territorial integrity intact (cf Taiwan) and political sentiment in Beijing is generally not in favour of any form of independence

Dr Robert Hancké is an Associate Professor of Political Economy at the London School of Economics. His research interests include the political economy of advanced capitalist societies and transition economies as well as macroeconomic policy and labour relations.

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