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> If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely conver
by csa 5y ago
> If China wanted more people around the world to use its currency, freely floating its exchange rate on the market is a must. That the RMB is not freely convertible like the dollar is is a huge hurdle to its international adoption.
In some circles, especially for very large cross-border transactions, this is definitely true.
That said, for microtransactions in developing countries, this is less of an issue. China will go out of its way to make this a stable and easily convertible currency for folks in these markets.
- seanmcdirmid 5y agoMaybe they could supplant the dollar in adjacent southeast Asian countries first? It’s pretty surprising how far the dollar goes in Laos or Cambodia, for example. The RMB not being convertible or freely traded is a real PITA (when I was being paid in it), why would they let their digital currency float if they aren’t ready to float the yuan? If the digital currency has full convertibility with the R!B, that’s a huge whole for their currency controls.
- csa 5y agoImho, it does not need to float to get the outcome that China wants. There is a summary of the ideas here: https://www.mauldineconomics.com/frontlinethoughts/a-giant-consumptive-force https://www.mauldineconomics.com/frontlinethoughts/a-giant-c... More can be found on Google/YT.
- seanmcdirmid 5y agoThe article doesn’t say how the currency will be valued, which makes its use outside of China problematic. The PBOC will have to set a price that has to mean something, and will mean less if exchange is restricted like the RMB. That Laos bar will have to know how much to charge for a beer in Kip, USD, bhat, and this new digital yuan…an exchange value has to be set.
- bobthepanda 5y agoI agree with what you're saying but I don't think float is the right word here. You can, with great difficulty, maintain a peg to something; the US was pegged for decades, the Euro was preceded by a fairly broad system of pegs, etc. Though most currency crises start by trying to defend an indefensible peg. Really the issue is restrictions on capital inflows and outflows. That bartender can say whatever things are worth in digital CNY at any given time but if they become unredeemable at any time they become totally useless. Any bank that starts restricting withdrawals is at risk of a bank run, and digital CNY would be no different. PBOC has a history of tightening the screws on capital flows, there's not really a reason to start trusting it with digital CNY.