Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

China Takes Tentative Steps Towards Global Currency

Currencies / China Currency Yuan Feb 13, 2011 - 06:05 PM GMT

By: Trader_Mark

Currencies

Best Financial Markets Analysis ArticleThe move of the yuan as a global currency is a very important one in the long run, as it will have potentially dramatic effects on the U.S. dollar as the sole reserve currency but for now things are going along at a snail pace.  In the interim, the Chinese currency is essentially pegged to the U.S. dollar (for better or worse).   Until the % of growth in China from exports is reduced, and they are far more reliant on internal consumption I don't see this loose peg changing anytime soon. Longer term, with 3 ugly ducklings (euro, dollar, yen) dominating the world's FX markets, the cart will eventually be turned over when a country (or region) coming from a position of fiscal strength rather than weakness enters the fray.  Via NYT:


  • Now that it has passed Japan to become the world’s second-largest economy after the United States, China is considering the next step as a world power: making its money a global currency.  No one expects that to happen immediately. And even the Chinese government is wary of making some of the free-market moves that would enable the renminbi to take its place alongside the dollar, euro and Japanese yen as a fully convertible reserve currency.
  • Still, over the last year Beijing has begun to gradually loosen its tight currency controls. For the first time, for example, American companies like McDonald's and Caterpillar have been allowed to finance their China projects by selling renminbi-denominated bonds in Hong Kong.
  • Meanwhile, in Russia, Vietnam and Thailand, some cross-border trades with China can now be settled in renminbi, so that trading partners do not have to convert in and out of dollars. One pilot program lets Russian companies like Sportmaster, a retail chain based in Moscow, buy or sell goods using Chinese currency.
  • And in New York, the Chinese government has permitted an overseas branch of Bank of China to accept deposits in renminbi. That enables depositors outside China to bet on a currency that is widely expected to appreciate against the dollar over the next few years.
  • “This is all encouraging the internationalization of the renminbi,” Kelvin Lau, an economist at Standard Chartered Bank who is based in Hong Kong, said of Beijing’s recent moves. “They want to make the Chinese currency a popular currency.”
  • At Thursday’s exchange rates, renminbi were trading just below 6.59 to the United States dollar — a level that many experts say values the Chinese currency artificially low, as a result of Beijing’s intervention efforts. Five years ago, the renminbi was trading at slightly more than 8 to the dollar.
  • Beyond mere bragging rights, China has economic motives for trying to go global with the renminbi. Analysts say the moves, if successful, could strengthen China’s influence in overseas financial markets and begin to erode the dollar’s dominance. Beijing could also eventually reap the rewards, like cheaper debt financing, that come with being recognized as a world reserve currency. 
  • Global importers and exporters could reduce their currency-fluctuation risks by settling China-related trade deals in renminbi rather than dollars or euros. 
  •  Robert A. Mundell, a Nobel laureate economist whose research is credited with helping develop the euro, says the renminbi’s rise is all but inevitable. “The RMB is likely to become a reserve currency in the future, even if the government of China does nothing about it,” Professor Mundell said in an e-mail response to questions. He noted that the renminbi was already a regional currency in Southeast Asia, where China had become the dominant trading partner of many countries.
  • If China does eventually open its capital market by eliminating currency exchange controls, he said, “the progress of the RMB as an international currency will be assured.”
  • But analysts caution that right now the renminbi is far from ready to mount a serious challenge to the United States dollar as the world’s leading reserve currency. For one thing, China needs to assure investors that its political system is stable and that its economy still has plenty of growth ahead. For all its rapid growth over the last 30 years, China remains relatively poor compared with the United States, the Europe Union or Japan.
  • As an influence on global financial markets, the renminbi is “still a distant, distant, distant fourth,” said Albert Keidel, a China specialist at the Public Policy Institute at Georgetown University in Washington. “People are going to start holding more renminbi, but it will be at least a decade or two for it to become a leading world reserve currency.”
  • China is the world’s largest exporter and one of the biggest destinations for foreign direct investment, but the Chinese government still maintains strict control over its currency and banking system and the flow of money in and out of the country. 
  • Economists say these restrictions allow Beijing to manage — some say manipulate — the renminbi exchange rate, keeping the currency undervalued enough to bolster exports. The policies also restrict the amount of capital that can enter the country — or exit in the event of a sudden downturn. 
  • China has been reluctant to make its currency fully convertible because its banks and financial system are still immature. What is more, allowing money to flow in and out of the country with few restrictions would effectively mean surrendering control over vital aspects of the state-run banking system.
  • But analysts say Beijing may eventually be forced to change its approach because its self-imposed financial restrictions leave the door to international markets only half open for China, undermining its global ambitions.  China’s tight management of exchange rates also leads to complex market distortions that analysts say force Beijing to accumulate huge foreign exchange reserves — much of them in the form of American Treasury bonds.
  • As long as China continues tightly linking the renminbi to the dollar, analysts say, the People’s Bank of China is effectively outsourcing the nation’s monetary policy to the United States Federal Reserve. And as the value of the dollar has dropped in recent years, Beijing has begun complaining that the United States’ soaring budget deficits are eroding the value of China’s huge dollar-denominated holdings.

By Trader Mark

http://www.fundmymutualfund.com

Mark is a self taught private investor who operates the website Fund My Mutual Fund (http://www.fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary.

See our story as told in Barron's Magazine [A New Kind of Fund Manager] (July 28, 2008)

© 2011 Copyright Fund My Mutual Fund - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules