Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

China's Yuan Enters the Currency "Big Leagues" to Take on the Dollar

Currencies / China Currency Yuan Jan 21, 2015 - 03:26 PM GMT

By: Money_Morning


Peter Krauth writes: I've been following one of the biggest "stealth" stories of the year: the rise of China's yuan as it gears up to take its place on the world stage.

Towards this very goal, China has taken steady, calculated steps for some time.

It's also no secret that China and Russia have a "special relationship" that will drive this trend.

China is likely to help its neighbor in this time of need, and the longer-term global implications could well be dramatic.

The Yuan's Standout Performance in 2014

As of early December, the yuan was the only one of 31 major currencies to have gained on the dollar in the latter half of 2014.

Now, that's not a shock, given that the yuan is pegged to the dollar for now.

But what is surprising is the rise of the dollar, especially in the context of exploding U.S. debt levels.

Despite the dollar's recent strength, I believe it's unsustainable in the longer term. Given the trillions of currency units created by the Fed since 2008, it's only a matter of time before it returns on the path towards its intrinsic value: Nil.

China's Makes Its Move Slowly

Meanwhile, China continues steadily checking off the items on its "currency reserve" list to gain that status for the yuan.

On December 26, 2014, the China Foreign Exchange Trade System (CFETS) indicated that China would begin trading swaps and forwards between the yuan and the Malaysian rinngit, the New Zealand dollar, and, of course, the Russian ruble.

China is determined to weaken the dollar's global dominance in international transactions and finance, an advantage it enjoys thanks to its status as the world's de facto reserve currency.

But this standing is gradually being chipped away both from inside and outside the U.S.

Having (on a purchasing power parity basis) the world's No. 2 economy, China's currency is becoming too relevant to exclude any longer. In November, we looked at how the European Central Bank (ECB) was considering including the yuan in its reserve currency mix.

As for finding the yuan attractive, the ECB is not alone…

For the Yuan, Few Obstacles Remain

Energy megadeals struck between China and Russia are well known.

Less known is Beijing's $24 billion currency swap program with Russia.

In mid-December, the South China Morning Post suggested that "Russia could fall back on its 150 billion yuan currency swap agreement with China if the ruble continues to plunge."

Meanwhile, China continues its moves to gain eventual inclusion of the yuan in the International Monetary Fund's SDR (Special Drawing Rights) currency basket, which now consists of the USD – 44%, euro – 34%, Japanese yen – 11%, and British pound – 11%.

Later this year, the IMF will perform its review (conducted every 5 years) of the currencies members can include in their official reserves.

In order to achieve inclusion for the yuan, China has to pass the IMF's economic targets; the yuan must be "freely usable," it must account for a large number of exports, and its inclusion must be supported by enough member nations.

The IMF has said that "there have been a number of developments regarding the yuan's international use, and the upcoming review would take stock of these developments."

According to the Society for Worldwide International Financial Telecommunication (SWIFT), the yuan's share of global money transfers set a record in September at 1.72%, ranking it the seventh most-used currency.

But support from the United States could remain the biggest obstacle.

A U.S. Veto May Not Be Enough

The U.S. holds 17% of IMF votes. If backing requires 85% of voting shares, the U.S. could veto China's move.

Given the implications, the IMF's 2010 Quota and Governance Reforms require Congressional approval for the United States to okay them. Congress has yet to pass these, effectively blocking IMF reforms, and still they weren't included in the recent budget legislation before Congress.

However, there seems to be significant support from IMF upper echelons.

In response to congressional unresponsiveness, IMF Managing Director Christine Lagarde said, "As requested by our membership, we will now proceed to discuss alternative options for advancing quota and governance reforms and ensuring that the Fund has adequate resources, starting with an Executive Board meeting in January 2015."

Of course the October vote at the IMF could go either way, but right now my sense is odds are good the yuan will make it into the SDR basket.

So what does this mean for you?

Limit Your Exposure

In the near term, the yuan could actually be due for some weakness, especially given the strength of the U.S. dollar. Recent action by the Swiss National Bank abandoning the franc's peg to the euro demonstrates the challenges inherent in just such policies.

For its part though, the dollar has already experienced a dramatic rise since July, one that it truly doesn't deserve, especially when you consider the ongoing deficits and the dubious milestone of $18 trillion in debt.

Despite recent strength, the dollar is in a long term downward trend worthy of caution.

If the yuan makes its way into the SDR basket, that doesn't guarantee China will maintain the current peg to the U.S. dollar.

At the first sign of serious economic challenges, the People's Bank of China (PBOC) could choose the path of least resistance, similar to Japan, and purposely weaken its currency to make exports more attractive.

If China extends help to Russia by buying rubles to support that currency, this too could contribute to weakness in the yuan.

With all these cross currents pushing and pulling currencies in different directions, your best defense is to avoid being overexposed to any particular one. And that includes the so-called "almighty" dollar.

Join the conversation. Click here to jump to comments…

Source :

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - 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