Friday, January 23, 2015

Swiss Seal Yuan Trading Agreement with China - What does this Mean?

Fresh off its decision to abandon its peg against the Euro, Switzerland signs a new agreement with China that sets up a Chinese bank branch for the purpose of increasing the use of the renminbi (Yuan) in Switzerland. This article in BRICSPOST explains the deal.

This is just another step along the path for China to get the Yuan into the SDR basket of currencies later this year at the IMF. First some quotes from the article, then a few comments.


"China has agreed to give Switzerland an $8 billion investment quota under its Qualified Foreign Institutional Investor (QFII) program as Chinese Premier Li Keqiang met President Simonetta Sommaruga of the Swiss Confederation at a ski resort on Wednesday.
The agreement is part of a memorandum of understanding signed by the central banks of the two countries in Davos and aids China’s attempts to diminish the dollar’s dominance in global trade and finance.
Switzerland’s central bank also said it had agreed with the People’s Bank of China (PBOC) to establish clearing arrangements in Switzerland for renminbi (yuan) trading.
“We are willing to make Switzerland one of the centres of offshore RMB business,” said Li.
Pending regulators’ approval, the deal will see the set up of the first branch of a Chinese bank in the Swiss financial hub of Zurich for future yuan clearance.
The deal is set to materialize Beijing and Bern’s pledge for closer financial ties and accelerate the establishment of a Zurich offshore yuan market."
. . . . 
"China’s currency will probably be more widely used than the yen and the pound in financial markets and trade in a few years, and the government should lobby other countries to have it included in the SDR (Special Drawing Rights) basket, the Shanghai Development Research Foundation said in a report in 2014.
"An upcoming review of the basket of currencie members can count toward their official reserves could see official IMF endorsement for the yuan as a global reserve currency alongside the dollar and euro in 2015."
My added comments:
The last two paragraphs of this artice (in bold above) are the key information in the article. The reason China is establishing these offshore Yuan trading centers all over the world is more than just to diminish the global use of the US dollar. It's even more than just to increase China's influence around the world. 
The driving force behind all this is to "see official IMF endorsement for the yuan as a global reserve currency alongside the dollar and euro in 2015." The way to get that official IMF endorsement is for the Yuan to be included in the SDR basket of currencies when that review is done later this year.
You see many articles and analysts taking the view that Russia and China intend to overthrow the western financial system and replace the US dollar with their currency (usually the Yuan is cited). Let's think about that and ask this question:
If that is really the Chinese objective, why are they so anxious to get "official IMF endorsement for the yuan" by having it included in the SDR currency basket alongside the dollar, the yen, the euro, and the pound?
That suggests the Chinese intend to stay inside the IMF and expect to have a place of prominence there when monetary system change happens in the future. It does not suggest they plan to try and overthrow the IMF and setup their own independent system to control the global monetary system with just the Yuan.
With that in mind, come back tomorrow and read the blog post we will have on Jim Rickards new articles. He talks about how all the movement of gold from the west to the east is being done by design to get China caught up with the west in gold reserves. He says this must happen before any global monetary "reset" conference can take place
We always have to follow the facts and accept them. Perhaps those who say China will overthrow the US dollar and the IMF along with the other BRICS nations will be right. But for now, the facts suggest to me that is not their plan. It might be a last resort some day if they cannot get what they want at the IMF (Yuan inclusion in the SDR basket).
It seems pretty clear to me that for now they have not given up on the IMF since they are moving heaven and earth to meet the IMF requirements to get the Yuan added to the SDR basket. That is what China keeps saying they want. Until that changes, I see no indication that they plan to move forward on their own to replace the IMF or the US dollar. It's one of our big keys to watch here for this year and we will.

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