Pacific Island Nation Nauru's Currency as Chinese Yuan? ...Australia in an Uproar

Severing Diplomatic Ties with Taiwan and Restoring Relations with China
Australian Dollar Threatens Nauru's Legal Tender Status

China's state-owned commercial bank, Bank of China (BOC), is pushing to enter the Pacific island nation of Nauru, raising prospects that the Chinese yuan could replace the Australian dollar as Nauru's official currency.

According to a report by Australia's ABC, Bendigo Bank, the only bank in Nauru, announced last year that it would withdraw from Nauru by the end of this year to focus on its Australian operations. As the Nauru government, businesses, and households that relied on Bendigo Bank face the risk of losing essential financial services, Bank of China has expressed its intention to enter Nauru, aiming to fill the gap.

[Image source=Yonhap News]

Nauru severed diplomatic ties with Taiwan in January and restored relations with China, which has been expanding its economic support to Nauru. As Bank of China targets the financial system void in Nauru, concerns are growing within Australia. If Nauru's dependence on China increases, there is a possibility that its official currency could shift from the Australian dollar to the Chinese yuan.

Nauru, the world's smallest republic, is highly economically dependent on Australia, to the extent that the operation of refugee detention centers established by the Australian government is a major source of its revenue. However, as human rights issues regarding Nauru's refugee detention centers have been raised within Australia, with calls for their closure, the Australian government is also reducing the operating budget.

On January 24, Wang Yi, China's Foreign Minister (right), shook hands with Lionel Aingimea, Nauru's Foreign Minister, after signing a joint statement on the restoration of diplomatic relations between the two countries at the Diaoyutai State Guesthouse in Beijing. [Image source=Yonhap News]

As a result, Nauru's economic growth rate last year was only 1%, indicating a significant economic contraction. Some analysts suggest that Nauru reaching out to China is a strategy to overcome its economic crisis.

Meanwhile, Bendigo Bank has extended its withdrawal schedule from Nauru by six months, from the end of this year to the end of June next year. During this period, Australian authorities are desperately searching for a successor to Bendigo Bank, with Australia and New Zealand Banking Group (ANZ) and Westpac being mentioned as candidates, according to ABC.