Asian currencies (Korea, Malaysia, Philippines, India, Indonesia, Taiwan and China) are now trading in lockstep with the Japanese yen. In large part this is managed: so many Asian countries compete in the same export markets that their central banks try to keep their currencies aligned with each other. Continue reading →
On Monday, October 3rd, 2016, a turning point for America begins: The beginning of the end for the global U.S. Dollar hegemony.
China’s yuan, or Renminbi (RMB), will officially join the International Monetary Fund (IMF)’s Special Drawing Rights (SDR) basket on Saturday, which indicates a step up in the international status of the currency.
The inclusion is first and foremost recognition of the substantial reform efforts conducted by Chinese monetary authorities.
“The RMB is already, for a number of years, very much an international currency.
China has also taken additional measures to allow the inclusion of RMBinto the SDR,” said Jurgen Conrad, head of the Economics Unit at the Asian Development Bank in China.
Alfred Schipke, the chief China representative of the IMF, thinks that the move’s significance isn’t limited only to the country.
“[I think] the RMB joining the SDR will indeed be a milestone for China, but also for the international financial system. It, in effect, recognizes the progress that has been made on the reform side in China over the past couple of years,” said Schipke. Continue reading →
Poland has become the first European country to issue government debt into China’s mainland bond market, with a bond of 3 billion yuan ($452 million), marking a significant milestone for renminbi’s growing use internationally, which builds towards its reserve currency status. Continue reading →
In today’s world, the financial meltdown in China has burned straight through the global financial system to the U.S. financial markets. The mainstream financial media is delighted to promote the many links between the U.S. and Chinese economies when the two economies are feeding each other’s expansion in a tightly coupled virtuous cycle. Continue reading →
It’s Not a Pet, It’s a Falcon: How the decline of the RMB destroys belief in central banking and a successful reflation
Turning and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the centre cannot hold;
– The Second Coming- W.B. Yeats
First catch your falcon, as the formidable Mrs Beeton might have said if she was in need of a method of catching her main course (see Mrs Beeton’s Book of Household Management 1861- ‘Recipe for Jugged Hare’). Continue reading →
It seems likely that China’s central bank will reduce its grip on the U.S. dollar.
An editorial on the People’s Bank of China website recently made the case that China should tie the RMB to a basket of currencies rather than to the U.S. dollar. As it stands, China’s currency is pegged to a basket of currencies, but the dollar has appeared to dominate the RMB’s exchange value. China’s foreign exchange system may calculate a RMB exchange rate index against a basket of currencies that gives less weight to the dollar in order to reinforce market forces.
The problem with micromanaging the economy is that things become rather complicated. That’s why China needs two currencies, one for the mainland, one for international banks. Since the devaluation on August 11, it seems China is losing control of both.
The Renminbi (RMB) or yuan is used within mainland China and can be exchanged for other currencies very restrictively. It is primarily used in trade but also for tightly regulated inbound and outbound investments.
There is no real market for this exchange rate, instead the People’s Bank of China (PBOC) comes up with a fix every day and then trades around it. Continue reading →
The U.S. dollar has dominated the international monetary system since the end of World War II. While the U.S. economy has generated weak growth since 2009, and accumulated a large sovereign debt, the dollar’s status as an international medium of exchange and reserve currency has not diminished. The Chinese renminbi (RMB), however, barely visible in international trade or financial flows just three years ago, appears to be blossoming. China is now the world’s largest trading nation, and more corporations, particularly in Asia, are beginning to invoice their business in RMB. The Chinese regime is calling for a reform of the international monetary system to expand the internationalization of the RMB. Speculation has begun about whether the U.S. dollar could be supplanted by the RMB. Such a development would jeopardize the enormous economic advantages that the U.S. has enjoyed by possessing the world’s dominant currency. Moreover, it would signal a relative decline in American prestige and global leadership. The answer to the dollar’s potential decline is not to seek obstacles to China’s or any other nation’s economic success, but to change fiscal and monetary policies at home in order to maintain the dollar’s competitiveness.The U.S. dollar has dominated the international monetary system for approximately 70 years. While the U.S. economy has generated weak growth over the past six years and accumulated a large sovereign debt, the dollar’s status as an international medium of exchange and reserve currency (currency held by foreign central banks) has defied the odds and has not diminished. Continue reading →
Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. Continue reading →
The China-Canada agreement on establishing North America’s first offshore renminbi center in Canada accelerates the process of the Chinese currency’s internationalization, said a Canadian expert.
“We should prepare to see the RMB to be much more widely used to become an international currency,” said Domenico Lombardi, an expert on global economy from Canada’s think tank Centre for International Governance Innovation’s global (CIGI).
The establishment of the RMB center symbolizes a key development in the process, Lombardi said in a recent interview with Xinhua. It will help deepen the bilateral relationship between China and Canada, the expert added. Continue reading →
Three of the world’s largest banks have warned that the flood of “hot money” into China is at risk of sudden reversal as the yuan weakens and the US Federal Reserve brings forward plans to raise interest rates, with major implications for global finance.
A new report by Citigroup told clients to brace for a second phase of the “taper tantrum” that rocked emerging markets last year, but this time with China at the eye of the storm.
“There’s a dangerous scenario in which the combination of rising US short-term rates and a more volatile RMB (yuan) could lead to a rather large capital outflow from China,” said the report, by Guillermo Mondino and David Lubin. Continue reading →
China’s growing success in internationalizing the RMB has both political and economic implications.
A Bank of International Settlements survey released on September 5 reveals that the renminbi (RMB) is now among the10 most actively traded currenciesin the world. This comes on the back of China’s recent draft plans to allow full convertibility of the RMB within the newly approved Shanghai Free Trade Zone (FTZ). Both events are intricately linked and are linked to deeper plans by the Chinese government to both internationalize the RMB and consolidate its influence and standing in global financial markets. This suggests that China’s global integration is no longer limited to trade, but is fast spilling over into the realm of finance. Continue reading →
HONG KONG — To understand the attitude of China’s new leadership toward reform, you need to understand “The Chinese Dream.”
Adopted by Xi Jinping as his governing slogan at the end of last year, “The Chinese Dream” has since become ubiquitous in the People’s Republic: it’s featured in newspaper editorials, TV debates and elementary-school textbooks. It’s taught in universities, prisons and work training programs. It’s written on walls and plastered on propaganda billboards.