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China’s Plan to Make the Yuan the World’s Go-To Currency
- raverbashing 10y agoFirst it needs to be fully convertible (meaning it can be bought and sold everywhere). Interesting the article doesn't seem to mention it
- athenot 10y agoWhy is that not the case? (I don't know enough about currency trade.)
- raverbashing 10y agoI suppose they still want to keep some control https://www.bloomberg.com/news/articles/2015-11-03/china-development-plan-to-promote-tech-capital-markets-reform https://www.bloomberg.com/news/articles/2015-11-03/china-dev...
- B4CKlash 10y agoThe Yuan is a restricted currency. This can mean a number of different things (depending on how a country wishes to restrict it's currency). In the case of China it means that its' currency cannot be held outside of China. In London it's perfectly reasonable for an individual company to have multiple bank accounts with various currency. This is not possible with the Yuan.
- dgemm 10y agoHow is it even possible to enforce that?
- seanmcdirmid 10y agoCompanies generally follow the law on currencies. So a London bank won't take yuan because the Chinese government says it can't. Your black market traders will take it, but they might...screw you over since you can hardly call the police on them.
- dgemm 10y agoI guess I don't understand why a bank in London would choose to comply with Chinese law when there is obviously business to be had.
- vetinari 10y agoThey have usually a business in China too - and want to keep it. For the same reason BNP Paribas paid the record 9 bil USD fine to US, even though it is a French bank.
- 2AF3 10y agoChina exerts influence on Hollywood even though its not in their jurisdiction, they control access to the Chinese moviegoer.
- vetinari 10y agoThe amounts handled by black market are harmless, that is not going to be enforced (unless it is necessary to make example of someone). What the regulation does, is to protect against attack on the currency on the open market, like 1997 SE Asia one. Obviously Chinese are currently holding an opinion, that this protection is currently worth more than uncontrolled investment.
- DashRattlesnake 10y ago> Companies generally follow the law on currencies. So a London bank won't take yuan because the Chinese government says it can't. I doubt it's that simple. Does that Chinese currency law have any force in the UK? I'm by no means knowledgeable about this, but I'd imagine it's more like any bank that offers yuan accounts in the UK would necessarily need to be able to do business in China to make the accounts useful, subjecting it to Chinese law. Since the Chinese government forbids the latter, the former is loses its appeal. So a London bank could take yuan if it had no Chinese presence, but it wouldn't want to.
- seanmcdirmid 10y agoNo it doesn't, but a bank that took RMB would basically be cut off from most sources that could consume RMB, like the Chinese government or Chinese companies. So they would be stuck keeping pieces of paper in a vault somewhere, hardly a nice situation to be in.
- fsloth 10y agoI would imagine that most money is in digital form even in china?
- B4CKlash 10y agoFrom a practical standpoint it means that all of the <Legal> currency translations are done inside of china. You wire 100MM USD to a Chinese bank, they preform a book transfer and deposit the equivalent into your RMB account. The bank plays a weird middleman in the transaction. Same thing happens in Brazil with the BRL (and a number of other countries).
- fspeech 10y agoSearch for "London yuan account" and you will find banks offering RMB accounts in the UK.
- akhatri_aus 10y agoThere are two Yuans, an offshore and an onshore one. You can't get access to the main one and there are arbitrage opportunities between them, due to the nature of the 'home' one being untradeable or unable to achieve price discovery due to a 50k a year limit on volume.
- John23832 10y agoThere is an "international" yuan and a "domestic" yuan. That scares finance people. Think about if the dollar (or the euro) was worth more or less depending on where you were...
- AnimalMuppet 10y agoBecause the Chinese government doesn't want it to be the case. They want the currency to be an instrument of government policy - to be able to make it weaker or stronger at will.
- xbmcuser 10y agoThat's what the article Implies that China is working towards it by slowly removing controls from it currency. Nowhere did I read that it was already a reserve currency or becoming one next month.
- tmptmp 10y ago>>Nowhere did I read that it was already a reserve currency or becoming one next month. That's not equivalent to saying: Yuan may become a "world go-to currency" if China manages to remove many communist-style controls from it and demonstrates their intent to make it free-to-trade by allowing Yuan free-to-trade for a continuous period of 50 years at the least. The article doesn't say this with such a detailed clarification and required qualifications to claims. Hence it seems like a propaganda coming from a communist dictatorship rather than a well researched article.
- akhatri_aus 10y agoI find it hard to personally use the CNY/RMB for anything. Money is a special thing and all history is taken into account with risk. I can't realistically imagine my money safe at any point over a hypothetical 50 year timespan, especially considering the interventions in the HKD over the past year or with the RMB/CNY in general. Imagine asking yourself the same thing about the US Dollar, Yen, even the Australian dollar, Pound over their entire timespan as a floated exchange rate. They've never been any illusions about it, it's WYSIWYG. You can't freely move CNY out of China to start with. Imagine having your savings, or backing your business on such a currency. I guess eventually it's possible, say after more than 3-5 decades of proof that its a stable currency
- yskchu 10y agoNot sure what you mean about interventions in the HKD. The HKD is pegged against the USD and it's been that way since the poms were still in power and HK was a colony. Specifically, since 1983, it has been pegged to the current rate.
- seanmcdirmid 10y agoHKD is basically the US dollar at this point, and it is fully convertible. Less risk than the RMB, which you should only hold to do biz in China or if you are resident there.
- akhatri_aus 10y agoThere were interventions in HIBOR last year that leaked into the HKD overnight rates. In effect lots of businesses ended up paying to help China stop currency outflows.
- seanmcdirmid 10y agoI was in this situation last year. After 8 years of working in China, I had much of my savings in RMB in a bank. I was pretty lazy about moving it out into investments, and since the RMB was appreciating, I didn't feel any pressure to jump through the hoops to do forex. However, after the initial deprecation last year, I saw the writing on the wall, and got the money out. It wasn't easy, but it wasn't impossible either. Chinese citizens can exchange $50K USD a year, which doesn't seem to be going away, while foreigners can exchange what they earn in China...with proper tax documentation (it took a few weeks to complete my initial forex). Investment opportunities in China really suck! You have the bubbly real estate market, the insider trader stock market, and foreigners are actually very restricted from doing either of both anyways (we can't buy stocks, acquiring property is tricky, not that I would want to do either). The only reason I kept my money in China was because of the appreciation, investments also weren't doing well at the time. I can see the RMB being a serious currency..it isn't that messed up compared to say the Venezuelan Bolivar, or many currencies in SE Asia or even the Indian Rupee. Heck, the Japanese Yen is even more volatile, and I would have lost big time if I made bets on the pound or the Australian dollar. But the lack of convertibility, even if only partial, is a big show stopper. They really should make more effort to that, and they seem to have stalled for the last 10 years while walking backwards from the reforms of the early/mid 00's.
- danmaz74 10y agoHow can those charts include the UK and not the Eurozone, which has a much bigger economy?
- chunhuoxidada 10y agoso all the world have to pay their estate bubble
- asciihacker 10y agocan you elaborate on what real estate bubble you are talking about please?
- John23832 10y agoChina is building... and building and building. Houses mostly. It's basing its growth on housing and industry like the US economy. The problem with that is that a LOT of Chinese people cannot buy a house. They simply don't have the liquid money or the same access to credit that American's do (for better or for worse). So what they have now is a glut of supply in their housing market (built upon credit), with a lack of demand. And really there is no way for the Chinese government to create that demand. They can't go the QE route because your currency is restricted. You don't have diversified industry to kickstart. Steel is down. And you're already saddled with both domestic and foreign debt. I'm no economist, but the future isn't that bright for China. Imo a Chinese collapse could be worst than an American one.
- seanmcdirmid 10y agoI wouldn't use the word "collapse", but a "crash" is definitely in the cards. The political system is too fragile to think that it can survive a crash, so they are trying to kick the can down the road as far as possible, which will just make the inevitable crash worse. We will live in interesting times, for sure.
- giis 10y agoCheck out this al jazeera documentary : https://www.youtube.com/watch?v=nGHmk4UeK_w https://www.youtube.com/watch?v=nGHmk4UeK_w It has some references to real estate
- akhatri_aus 10y agoThis is why they have huge outflows as on the graphic on the link. Yet they can't really make the world pay for it without it being self inflicting in one way.
- euroclydon 10y agoInterestingly the forecast expansion of sovereign Chinese bonds from 4% of global total to 15% over the next 15 years, looks to come totally at the expense of Japanese sovereign bonds, not those of the U.S.
- ting_bu_dung 10y agoChina's more likely to suffer hyperinflation first, than become the go to currency. 1.) Yuan is being printed massively (it hit a credit-to-gdp ratio of 30 to 1 http://www.bbc.com/news/business-37403363 http://www.bbc.com/news/business-37403363) 2.) it is a non-fully-convertible currency 3.) there are severe restrictions for yuan to move out of the country due to capital controls. max $50/year. also, $15k/year withdraw restrictions (http://money.cnn.com/2015/09/30/news/china-overseas-atm-cash-limits/ http://money.cnn.com/2015/09/30/news/china-overseas-atm-cash...) 4.) no one is required to use yuan for trade. 5.) nobody wants yuan outside China. people in China are desperate to exchange yuan for other things inside China. All the conditions are there for hyperinflation to occur. Might happen early next year when europe and China both likely reject China's market economy status, and starts imposing tariff on Chinese imports heavily.
- ktRolster 10y agowhen europe and China both likely reject China's market economy status, What does that mean?
- adventured 10y agoMore information on what's going on: http://www.reuters.com/article/us-china-usa-trade-idUSKCN0ZU1VU http://www.reuters.com/article/us-china-usa-trade-idUSKCN0ZU... http://thediplomat.com/2016/07/market-economy-status-for-china-the-views-from-brussels-and-beijing/ http://thediplomat.com/2016/07/market-economy-status-for-chi... The argument is essentially that China's economy doesn't function as a proper market economy. That too much of its economy is directly governed by State controlled or owned corporations. That prices in its economy don't function enough based on market influences. An example of this would be their vast dumping of steel and some other industrial products, while their government continues to directly subsidize the dramatic over-production despite large losses in the steel industry.
- jorgecastillo 10y ago>The argument is essentially that China's economy doesn't function as a proper market economy. Which is true. I really hope this happens, it's time for China to start playing by the rules of a real market economy or lose access to the global market. We should not tolerate China subsidizing their industry, at the expense of other industrial countries.
- runeks 10y agoI would argue: the only reason the US Dollar is the world's reserve currency is because it was created like that at the Bretton Woods conference shortly after the end of World War II. This was only accepted by the other allied nations because US Dollar was declared convertible to gold, at $35 per troy ounce. This, however, only remained the case for foreign central banks until 1971, when the promise was defaulted on. So the dollar, in its current form, was born a gold certificate, that then transmuted into a currency. I doubt the Yuan -- or any other currency at all -- can replicate this, and I think that would be necessary. I see no reason any central bank would want to swap out their Treasury bonds with Chinese government bonds (Treasury bonds are already too illiquid in times of crises, which is when we really need it), or any reason either consumers or merchants would want to start using the Yuan, other than to pay for imports from China.
- John23832 10y agoAnother note, Marshall Plan funds were given in USD. So it was in the European nation's favor to have a strong dollar. Strong dollar == more resources == more (better) reconstruction
- akhatri_aus 10y agoIt's also that the US doesn't play games with it's currency, there was alot learned from the 1850s experiments with 'free banking'. Since the collapse of Bretton Woods they've let the USD freely float without intervening or controlling it in any way. There's hardly much in the club as such: the GBP, JPY, CHF (broke all trust early last year, simply because they didn't do it on a weekend), USD, EUR and CAD. Fun fact with CHF, they've had 2.2% inflation on average since 1880, unrivalled, it's crazy they threw that stability away. It's not as simple as just being in existence. There's alot of 'trust' to it too, Countries could easily diversify against the USD on their reserve baskets. The CNY isn't a significant proportion of any basket because of the lack of trust & free liquidity with it.
- John23832 10y agoThe US kept the value of the dollar down in 2008 with QE. We manipulate too, just more in the open.
- MichaelBurge 10y agoI'd rather store my retirement money in Bitcoin than in Chinese Yuan, and it's a terrible idea to store your retirement money in Bitcoin. Come to think of it, I believe the Chinese people have come to the same conclusion?
- fu9ar 10y agoFUD FUD FUD US fiat currency has only existed for 45 years, which is less time than your outside range for "proof that its a stable currency." edit: Apparently, since you are missing my fucking point, asking for 3-5 decades of currency stability before someone would be comfortable using a currency is insane. Communist China isn't fucking going anywhere.
- ecnal 10y agoWho let Ron Paul on the internet?
- deleted 10y ago[deleted]
- akhatri_aus 10y agoI'm not downvoting you, you do present an important point but I think history has accepted the fiat currency. A currency's stability isn't defined in terms of its convertibility into Gold. A currency naturally evolves with the economy. The USD itself has existed for over 150 years. While I do understand your point it's markets at a whole that decide these things. The USD is very good at storing its value if you were to compare all the other currencies from the plethora of countries out there. Keep in mind there were other currencies also pegged to Gold & Silver. In the late 1890s there was a dem politician, William Jennings Bryan who played a part in this. I guess its one of those things that caught on. Edit: Didn't ready that you mentioned 3 decades is too, long. Actually it's too short, a currency's best test is how it stands inflation & recession - just they come around once a business cycle, which is excruciatingly long.
- fu9ar 10y agoI didn't argue against fiat currency. I argued against FUD against China's currency based on stupid ideas. I do think that the difference between a gold-backed and fiat currency is a valid difference, but would never advocate for a gold backed currency because storing gold in vaults is stupid when we can use it for actually useful things instead. Knee-jerk internet-argument STEMlords jumped on the word fiat without actually understanding the context.
- phkahler 10y ago>> One of the basic definitions of a reserve currency is that it must be freely traded. And the yuan is not quite there yet. But doesn't the federal reserve consider the value of the dollar against other currencies in its rate making decisions?
- cheez 10y agoThere's a difference between pegging the value at X and considering impact when making somewhat-related decision Y
- hx87 10y agoYou are free to do whatever you want with the dollars you have. So is the US Federal Reserve. That's the difference--not only does the PBOC insist on freedom of action for itself, its government insists on strict limits on freedom for all held Yuan.
- fredliu 10y agoSilly question: is the US dollar being the world's go-to currency part of the US's national interests? If so, how big of an interest is that to the US? If "yes", and "very" are the answers, I wonder if Yuan can ever replace US dollar without a fight.
- mevile 10y agoIt's totally in the interests of the US to have people, governments and companies to give the US cash in exchange for bonds instead of giving that cash to other governments, like China.
- hx87 10y agoCompared to giving the US cash in exchange for goods and services, though? That's a much murkier comparison.
- neaden 10y agoMaybe. A lot of people assume that it is, but there isn't really good evidence that that's the case. The clear cut benefit is that drug dealers and rich Russians keep big stacks of $100 bills in vaults, but besides that it gets murkier. That said the US government certainly seems to think it is in our interest and work to maintain it.
- hx87 10y agoIt's in the interests of consumers and importers, and against the interests of producers and exporters. Given that 70% of GDP is consumption, consumers together have much more political and economic power than producers, so their interests tend to prevail when that interest is collective and unitary.
- rrggrr 10y agoIt is NOT in US interests. It is an exorbitant burden as explained by Michael Pettis here: http://blog.mpettis.com/2014/10/are-we-starting-to-see-why-its-really-the-exorbitant-burden/ http://blog.mpettis.com/2014/10/are-we-starting-to-see-why-i... In short, US debt and money supply cannot keep pace with global asset growth. One or the other must (and is) giving way.
- abysmallyideal 10y agoThe RMB and Yuan seem like good longterm investments IMO despite the current volatility in Chinese markets. The one thing however that is concerning is China's abilities to counter US attempts to devalue and destabilize their currency, much like what occurred to the Euro in the collapse of '08. During the time preceding, the Euro was a great contender, not so much anymore. Also the collapse of the Yen spurned by American economic manipulation. One noticeable difference to add is Japan and the EU are US military dependents and therefore by logic also US economic dependents. The Chinese are not. Not sure how that would value in calculations, but it is a significant factor.
- jessaustin 10y agoWith a more developed domestic market, China wouldn't be an "economic dependent" of USA. As it stands now, however? I think it really is.
- abysmallyideal 10y agoNah, that is so softball. The US will hit them with something that has far more leverage. China has a severe weakness and that is the capacity to feed their population and the hundreds of millions of young single Chinese men who will never find a spouse. Food, water, and women willing to take on Chinese spouses.
- jessaustin 10y agoI would almost buy the food argument, but there aren't all that many American women lining up to marry Chinese men. I'm sure such people exist, but not in numbers sufficient to alleviate this particular issue. American men marry non-Americans, but for the most part American women do not.
- rrggrr 10y ago> The RMB and Yuan seem like good longterm investments IMO despite the current volatility in Chinese markets. Debt to GDP is 282% and on a trajectory to hit 500% if action is not soon taken. There is no long term upside if debt is not reduced. > China's abilities to counter US attempts to devalue and destabilize their currency China's exchange rate is set by China alone. If there is destabilization taking place it is capital fleeing China in anticipation of a debt crash and asset bubble implosion. > the collapse of the Yen spurned by American economic manipulation. The Yen is suffering from a demographic crisis where younger workers are far outnumbered by an aging population. This is problem in a number of countries. Hopefully you're being paid in USD to post this propaganda.
- sickbeard 10y agoNot with their type of government they won't.
- up_and_up 10y agoAll well and good, but why should the world trust China with that role?