Monday, November 10, 2014

What's China Up to Lately?

In the previous post we examined how the recent US elections are likely to stall out IMF reforms for a long time (unless another financial crisis arises suddenly). This will not deter China. They will continue to work slowly and surely towards a Yuan that can challenge the US dollar as sole global reserve currency. Here are several articles on what China is up to lately. First some quotes, then some comments. 


"China's central bank announced Monday that it has signed a currency swap deal worth 35 billion yuan (about 5.7  billion US dollarswith the central bank of Qatar."

"The deal marked a new step forward in financial cooperation between the two countries,   and will facilitate bilateral trade and investment to help maintain regional financial stabilitythe statement said."

"Ottawa and Beijing have struck a deal that will see this country designated as a trading hub for China’s yuan currency, a benefit that will lower the cost of doing business for Canadian companies seeking Chinese markets."
"The hub, a financial centre sanctioned by China to clear and settle transactions in the Chinese currency, would likely be based in Toronto, sources say."
"Chinese companies prefer transacting in their own currency. Otherwise they have to convert their transactions into U.S. dollars, and then “re-convert” back in China."
"A yuan trading hub has the financial infrastructure for settlement and clearing, and sufficient liquidity to handle large transactions at a stable and predictable exchange rate."

"Some countries are already using the Chinese yuan in their foreign-currency reserves without announcing it publicly, central bank governor Zhou Xiaochuan said."
"While China’s yuan has begun to be used as a reserve currency for several years, some countries “may not be willing to say so,” Zhou told Bloomberg on the sidelines of the International Monetary Fund meetings in Washington."
“Some homework” remains for China to do to promote its currency globally, including making the yuan freely convertible in a gradual manner, and furthering efforts to “respect market demand and supply and maintain financial stability,” according to Zhou."
"China has set up bilateral currency swap lines with more than 20 countries and regions since 2009, including Switzerland, Brazil, Hong Kong, Indonesia and South Korea, the Xinhua News Agency reported in July."
"The inclusion of yuan in the currency basket of Special Drawing Rights, or SDR, the IMF’s unit of account, will happen when conditions are right, PBOC deputy governor Yi Gang said yesterday in Washington. “A canal is formed when water comes,” Yi said, using a Chinese idiom. The basket currently is made up of the dollar, euro, pound and yen."

"The renminbi (yuan) could become convertible under the capital account "within a three-year time frame", said a Chinese scholar with an official background."

"Full capital account liberalization is critical for the internationalization of the renminbia   policy agenda pursued by the Chinese government."
My added comments: 

All these articles show you that China will move forward on its own plan regardless of what the US Congress does with the IMF reforms. Note that China intends to move forward on making the yuan BOTH a trade currency AND a reserved currency. These articles point out that China understands that they have to make some changes to get this done and are steadily working on those changes. China is also boosting its alliance with Russia as a counterweight to US global influence.

It also shows you why we think major change that involves the US dollar losing its status as sole global reserve currency will eventually happen. Sooner if there is another major financial crisis, or later if there is not.

In the next post we will see that the whole world is moving in this direction whether the US Congress goes along or not. The question remains the pace of the change.

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