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In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...
Breakaway region Inner Mongolia
Parent country China
Old currency Chinese Renminbi (CNY)
New currency New Inner Mongolian Tügürig
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?
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
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
Change in value of Chinese yuan (CNY) since 2000, based on SDRs per currency unit source
Dr Robert Hancké
“Export-led growth, a classic economic development strategy for poor countries, would become a possibility for the region.”
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
An independent currency, effectively underwritten by Chinese economic growth through a free trade area, could have tremendous benefits for Inner Mongolia
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.