RMB in greater use for cross-border trade

[Götterdämmerung]

Methink that the Chinese just gave the USD a new lease of life as their goal to get rid of their USD holding has not been reached yet. Maybe there are also other unknown strategies why the Chinese want to joint the SDR. But I'm sure the Chinese wouldn't be stupid to make the yuan into the new global reserve currency, as that would force China to make a lot of debts and in a few decades China will be at the same spot as the US right now.

 

[Jlaw]

Methink that the Chinese just gave the USD a new lease of life as their goal to get rid of their USD holding has not been reached yet. Maybe there are also other unknown strategies why the Chinese want to joint the SDR. But I'm sure the Chinese wouldn't be stupid to make the yuan into the new global reserve currency, as that would force China to make a lot of debts and in a few decades China will be at the same spot as the US right now.

im curious as how or why China would need to take on debts in order to be a reserve currency?

 

[Götterdämmerung]

im curious as how or why China would need to take on debts in order to be a reserve currency?

I'm sure, @Shotgunner51 can explain this much better than I do.

 

[Shotgunner51]

I'm sure, @Shotgunner51 can explain this much better than I do.

I believe you mean this:

When a currency is being used as reserve by many others, the increased popularity & demand will support its value, hence giving the issuing nation higher purchasing power.

When such an increased purchasing power turns into consumption (private, and government expenditure) of imports, the nation might incur trade deficits, which then might accumulate into debts. Moreover, if exports rely only on being price-competitive (without other core competitiveness), that would be negatively affected by high home currency. Trade deficit is one of the main reasons (but not the only reason) to become debtor nation

The other reason is fiscal discipline, which is particularly important for nations issuing reserve currencies. Raising external debt is fine (serviceable) when used for building value-generating assets, otherwise it's not sustainable.
​

Yes, dollar-issuer (US) and pound-issuer (UK) are debtor nations, however, things are exactly opposite for other reserve currency (yen, euro) issuers. Japan and Germany are creditor nations, among largest in the world.

Note: Not all nations report NIIP as per IMF BPM6, e.g. GCC, which reports Net Foreign Assets. Saudi Arabia reported a Net Foreign Assets of USD 554 bln as of July 2016, comparable to levels of Singapore and Netherlands.
​

My opinion:

Reserve currency or not, financial strength of a nation is still down to economic fundamentals. Advanced core technologies keep industries competitive, keep exports less price-sensitive and stay strong. Financially strict self-discipline (household, government) to stay away from external debts.

China Mainland is walking the path of East Asian peers (and that of Germanic countries), it will take some years for economic fundamentals to reach those levels. RMB despite being in SDR, is not freely convertible yet, it will also take time for China to be ready.​

@Jlaw

 

[Shotgunner51]

I'm sure, @Shotgunner51 can explain this much better than I do.

And obviously some debtor nations, especially those who can issue reserve currencies, do not agree with fiscal discipline.

http://www.channelnewsasia.com/news...sed-to-do-more-for-global-growth/3189422.html

In Washington, Germany pressed to do more for global growth

WASHINGTON: Pressure is mounting on Germany from the international community to do more to boost global growth by raising spending, just as it moves to assume the leadership of the powerful Group of 20.

Europe's economic power was told in no uncertain terms during the IMF-World Bank meetings in Washington this week that it is expected to lead the effort to pull world growth out of its slump.

"We believe that some countries have fiscal space. Well if so, they should use it," said Christine Lagarde, managing director of the International Monetary Fund. "We are certainly including in that category countries like Canada, like Germany, like Korea," she added.
​

https://www.cigionline.org/blogs/ke...ted-international-economic-policy-and-it-does

CIGI at IMF: Germany is Isolated on International Economic Policy — and it Doesn’t Care​

 

[Jlaw]

And obviously some debtor nations, especially those who can issue reserve currencies, do not agree with fiscal discipline.

http://www.channelnewsasia.com/news...sed-to-do-more-for-global-growth/3189422.html

In Washington, Germany pressed to do more for global growth

WASHINGTON: Pressure is mounting on Germany from the international community to do more to boost global growth by raising spending, just as it moves to assume the leadership of the powerful Group of 20.

Europe's economic power was told in no uncertain terms during the IMF-World Bank meetings in Washington this week that it is expected to lead the effort to pull world growth out of its slump.

"We believe that some countries have fiscal space. Well if so, they should use it," said Christine Lagarde, managing director of the International Monetary Fund. "We are certainly including in that category countries like Canada, like Germany, like Korea," she added.
​

https://www.cigionline.org/blogs/ke...ted-international-economic-policy-and-it-does

CIGI at IMF: Germany is Isolated on International Economic Policy — and it Doesn’t Care​

I don't believe China will be so easily push like Korea or Japan. I fact if it was not for China rescue in 2008, world situation would be worse tiday

 

[Shotgunner51]

More than 100 Countries are Now Using the RMB for Payments with Mainland China and Hong Kong
2016-10-27 09:00

SWIFT's latest RMB Tracker shows that
57 countries have crossed the 10% RMB threshold

HONG KONG, Oct. 27, 2016 /PRNewswire/ -- The latest RMB Tracker shows that during the last two years (October 2014 – September 2016), seven new countries are now using the RMB for more than 10% of their direct payments by value with Mainland China and Hong Kong, bringing the total to 57 countries worldwide. The 10% milestone, also known as 'crossing the RMB river', is a threshold set by SWIFT to measure the adoption of RMB payments by value with Mainland China and Hong Kong compared to other currencies.

Seven more countries are "crossing the RMB river" since October 2014 - Spain, Bolivia, Colombia, Mozambique, Namibia, Kuwait and Georgia.

"Over the last two years, we have witnessed a continued increase in RMB usage for direct payments with Mainland China and Hong Kong, with most of the growth coming from early adopters and main RMB clearing centres, such as Singapore, the United Kingdom and South Korea," says Astrid Thorsen, Head of Business Intelligence Solutions, SWIFT.

"On the other hand, two of the largest economies in the world[1] and important trade partners with China, United States and Japan, still show low RMB adoption. The latest announcement related to the appointment of the first RMB clearing centre in the United States should positively impact the country's RMB usage."​

Among the 101 countries using the RMB for payments, the weight of these payments by value reached 12.9%, giving the currency a nearly 2% increase since October 2014 (11.2%).

Overall, the RMB kept its position as the fifth most active currency for global payments by value, with an increased share of 2.03%, compared to 1.86% last month. In September 2016, the value of RMB global payments value increased by 10.02% compared to August 2016, which is higher than the average growth of 0.93% for all currencies.

Read more at http://en.prnasia.com/story/161930-0.shtml

 

[ahojunk]

Yuan strengthens against a basket of currencies in October
2016-11-05 12:17 | Xinhua | Editor: Mo Hong'e

The Chinese yuan strengthened by 0.16 percent against a basket of currencies in October despite weakening against the U.S. dollar, according to data released by the China Foreign Exchange Trade System (CFETS) Friday.

The yuan exchange rate composite index, which measures the yuan's strength relative to a basket of 13 currencies, including the U.S. dollar, euro and Japanese yen, came in at 94.22 at the end of October, up from 94.07 a month earlier, the CFETS said in a statement.

The index that measures the yuan against the Bank for International Settlements currency basket strengthened by 0.34 percent month on month to 95.07, while the index that measures against the Special Drawing Rights basket strengthened by 0.49 percent from a month earlier to 95.52.

The figures showed that the yuan is basically stable against a basket of currencies, though expectations for an interest rate hike in the United States and fears over Britain's exit from the European Union have led to a stronger dollar, the CFETS said.

As the dollar index, which measures the dollar against six major currencies, rose to its highest level in eight months in October, the yuan weakened against the dollar "in order to maintain stability against a basket of currencies," it noted.

The central parity rate of the Chinese currency against the dollar weakened to 6.7858 last week, a six-year low, before gaining a bit this week, losing 1.28 percent in value for October.

The market rate against the dollar weakened by 1.49 percent in October, according to the CFETS.

However, compared to other emerging economies and developed economies, China's currency depreciation was relatively small, it said.

In October, the euro zone, Japan and Singapore saw their currencies weaken by 2.05 percent, 3.02 percent and 1.87 percent, respectively, against the dollar.

"Overall, the market does not worry about the yuan's fluctuation," the CFETS said.

As history shows the impact of U.S. interest rate hikes largely plays out early, there are "relatively big uncertainties" over the dollar's value in the future and the yuan will keep moving against the dollar in both directions, according to the CFETS.

It also cited China's healthy financial and fiscal fundamentals, improving economic data and the yuan's recent inclusion in an elite reserve currency basket as factors to support the currency's stability.

The yuan exchange rate composite index was first released in December 2015 to offer a more comprehensive reflection of exchange rate changes. Previously, analysts were mainly fixated on the yuan-U.S. dollar rate.

 

[TaiShang]

RMB internationalization welcomed by domestic and overseas enterprises
By Kou Jie (People's Daily Online) December 21, 2016

[File Photo]

Both domestic and overseas market entities have adopted an optimistic attitude on the internationalization of the RMB, with nearly 70 percent of overseas enterprises planning to use the RMB or increase usage of the RMB, according to a bank report.

Released by the Bank of China on Dec. 19, the report interviewed 3,477 domestic and foreign enterprises, spread across 41 countries and regions. The report comes two months after the IMF added the RMB to its Special Drawing Rights Basket (SDR), giving the RMB the same privileges as other international currencies, including the U.S. dollar and British pound. The move recognizes and reinforces China’s continuing progress in reforms.

According to the report, RMB products now cover broader areas along the Belt and Road region, offering 74 percent of respondents in the region easy, local access to the RMB. This number is up 2 percent from last year. At the same time, RMB internationalization has been developed in fields related to free trade zones due to favorable policies.

Though RMB internationalization fluctuates in the short term as the market environment changes, the fundamentals improve continuously, indicating upbeat long-term prospects. Both domestic and overseas enterprises remain optimistic about the international currency status of the RMB, with 30 percent of respondents holding the view that the RMB may achieve the same high status as the Japanese yen and British pound. Forty-two percent have faith in the RMB becoming an international currency on level with the U.S. dollar and euro.

Despite the fact that foreign enterprises express faith in the RMB, about 77 percent of overseas respondents said they would convert their RMB revenue into U.S. dollars or local currencies. The percentage of overseas respondents that would continue to hold the RMB in the form of deposits, invest in RMB bonds and invest in RMB equity amounted only to 13 percent, 3 percent and 3 percent respectively.

 

[TaiShang]

RMB becomes more frequently used in Latin America
Xinhua, December 31, 2016

A tango show in Argentina, a caipirinha in Brazil, a delicious ceviche in Peru, or a weekend beach break in Mexico. All these pleasures may soon be paid for with a wad of crisp 100 renminbi (RMB) bills.

This is a consequence of the growing presence of the Chinese currency in Latin America thanks to the region's deepening financial cooperation with China and the internationalization of the RMB.

On Oct. 1, the RMB was added to the International Monetary Fund (IMF)'s Special Drawing Rights basket, a supplement to a shortfall of preferred foreign exchange reserve assets, namely gold and the U.S. dollar.

This has brought the Chinese currency to a new level of international fame, and it is now not unusual to see shopkeepers in Buenos Aires' antiques markets accept RMB from Chinese tourists.

The 100-RMB notes are already frequently used in commercial exchanges in Argentina, Brazil, Chile and Suriname, countries with which China has currency exchange agreements.

The growing cooperation also allows China's UnionPay bank cards to be used in 12 Latin American countries, including Mexico, Brazil, Argentina and Peru.

Beyond having the UnionPay logo added to signs that traditionally welcomed only Visa, MasterCard and American Express, the Chinese rival is also seeking to launch UnionPay cards in local markets.

Speaking to Xinhua, Argentinean international relations expert Jorge Castro said the IMF's decision is positively impacting Argentina.

For Castro, who leads the Institute for Strategic Planning, "the use of the RMB as a global currency will accelerate the promotion of Argentinean agricultural exports. Furthermore, the currency will play a larger role in Chinese financing in Argentina."

Juan Pablo Scasserra, director of foreign trade for HSBC Argentina, said earlier this year that "operating in RMB allows Argentinean exporters and importers to negotiate better conditions with their Chinese counterparts, among other benefits."

"Argentina and China have reached a new political level in their relationship, which makes them strategic and integral partners," Gustavo Girado, director of Asia & Argentina consultancy, told Xinhua, adding that the RMB joining the IMF's elite currency club can bring about more opportunities for both countries.

According to Inter-American Development Bank Vice President Alexandre Meira da Rosa, the bank also sees the internationalization of the RMB in Latin America as a positive step, which can make trade easier and open up alternative lines of financing.

 

[ahojunk]

Yuan rebounds against dollar
2017-01-06 09:01 | China Daily | Editor: Feng Shuang

The yuan registered the biggest gain in a year in overnight trading in the offshore market on Thursday as the dollar weakened and China's monetary regulators strengthened scrutiny of foreign exchange purchases.

Some analysts said the yuan may only depreciate slightly or even rise against the dollar this year, as China's economic fundamentals improve.

In the offshore market, the yuan broke the 6.87 mark against the dollar in intraday trading to hit 6.8648, up by 900 basis points compared with the previous day's lowest level. It also rose strongly in onshore trading.

The central parity rate of the yuan, set by the People's Bank of China, was 6.9307 against the dollar on Thursday, up by 219 basis points from Wednesday, the biggest daily gain in percentage terms since Dec 6.

The yuan's rise against the dollar "was not triggered by an outright intervention by the PBOC. Instead, it is more like a knee-jerk reaction as there were massive stop-loss flows in the market", Zhou Hao, senior EM economist at Commerzbank, told Reuters.

Technically, the surging short-term borrowing cost of the yuan, with interest rates over 40 percent in Hong Kong, compared with less than 5 percent in early December, is behind the soaring yuan, analysts agreed. The high costs forced short sellers to square their positions, leading to the rebounding of the yuan.

The weakening of the dollar index, which fell below 102 in intraday trading on Thursday, and the expectations management of China's monetary regulators have contributed to the rise in the yuan's value, said Zheng Min, an analyst of Guoyuan Securities.

"The central bank has repeatedly said it will keep the yuan stable and its recent regulation of foreign exchange and capital flows has started to work," she said in a report.

She added that the dollar may continue to strengthen after US President-elect Donald Trump is sworn in later this month, but the yuan will not depreciate sharply against the greenback. "It may only depreciate slightly this year to about 7 against the dollar."

From a mid－to long-term perspective, the yuan's value is still determined by China's economic fundamentals, said Hu Yuexiao, chief analyst of the Shanghai Securities. China's economic growth is slowing, but it remains one of the fastest among major economies; its economic restructuring and supply-side structural reform will make it more competitive and its industrial policy and macroeconomic management are more efficient compared with many other economies, Hu said. "Those factors support a stable yuan."

 

[ahojunk]

Chinese yuan starts new year journey with big jump
2017-01-07 09:22 | Xinhua | Editor: Wang Fan

The Chinese yuan, or renminbi, started the new year with a big jump, surprising the market with a strong strengthening performance.

The central parity rate of the yuan continued to strengthen against the U.S. dollar on Friday by a hefty 639 basis points to reach 6.8668, the highest within a month, according to the China Foreign Exchange Trade System.

This was the yuan midpoint's biggest one-day increase since 2005 when it was revalued.

The market expected that the yuan might experience a new round of depreciation against the U.S. dollar in 2017 over concerns of slowdown of the world's second largest economy, capital outflows and anticipation of U.S. interest rate hikes.

However, both the offshore (CNH) and onshore yuan have been rallying this week, mainly driven by a surge in yuan borrowing costs offshore and tighter liquidity.

The offshore yuan has risen about 2.5 percent since Tuesday, with its gains over Wednesday and Thursday being the biggest two-day gains since its introduction in 2010.

This turnaround caught yuan short sellers off guard, and has been likened by some to the yuan's dramatic turnaround last year following its prolonged depreciation.

"The movement yesterday, however, was not triggered by an outright intervention from the People's Bank of China [...] it was more like a knee-jerk reaction as there were massive stop-loss flows in the market," said Commerzbank AG senior EM economist Asia Zhou Hao.

Zhou said the cost of funding has been rising for weeks in the CNH market, meaning it will be costly to short-sell the yuan. The market, meanwhile, was cautious when USD-CNH was approaching the landmark level of 7.0.

Lin Caiyi, chief economist with Guotai Junan Securities, attributed the strengthening yuan to a weakening dollar as the latest U.S. Fed meeting dulled market expectations for an even stronger U.S. dollar.

Meanwhile, a decision by the Chinese central bank and the forex watchdog to enhance checks on individual and institutional forex transactions also contributed to the strengthening yuan, Lin said.

The Chinese central bank shifted its benchmarked exchange rate policy from a stable yuan to a stable yuan against a basket of currencies (CFETS), which suggests the central bank intends to stabilize the CFETS basket during the U.S. rates normalization cycle.

This year, China expanded its official CNY basket to 24 currencies from 13. In the new basket the weighting of the USD and that of all currencies pegged to the USD has fallen from 33 percent to 30.5 percent.

However, all these technical amendments will do little to change market sentiment. The yuan is still under pressure due to capital outflow, Zhou pointed out.

Chinese banks continued to see net foreign exchange sales in November, and the volume expanded, while forex reserves fell for the fifth straight month to 3.05 trillion U.S. dollars, the lowest level since March 2011.

A "managed floating regime" remains the key theme for CNY exchange rate over the foreseeable future, Zhou added.

Depreciation of the yuan might slow and fluctuations are likely as over short-selling could be very costly, Lin said.

The offshore yuan ended its surge on Friday afternoon and began to fall, dropping by over one percent at some point during the trading.

 

[Bussard Ramjet]

It’s Too Early For China to Make Yuan Global, Ex-PBOC Monetary Policy Committee Member Says
Yicai
2017-03-02

(Yicai Global) March 2 -- It is too early for China to implement the yuan’s internationalization, said Yu Yongding, former member of the monetary policy committee of the People’s Bank of China, at the Jimen Law and Finance Forum.

China's push to make the yuan global after 2010 progressed too quickly and there was too much resistance to reform in China, he said. The country’s policy and decision makers want to achieve capital account liberalization, and hope to open accounts to allow foreign capital influx into China, leading to a “forced reform” situation, Yu said.

This same logic that was used when China joined the WTO in 2000 has been applied in hopes that business reform will be promoted through trade liberalization. Yu has had strong reservations about this methodology from the start. “Trade and finance are not the same,” he said. “Capital is invisible and very difficult to control. The government may not be successful in forcing the reform, which will cause great chaos.”.

China opened up capital accounts as it moved to internationalize the yuan, and then hot money began pouring into China. Mainland China used to be isolated by a capital market firewall, which was blocking the inflow of foreign capital, but now a path for moving money in has been forged.

China did not carry out exchange rate reform to produce a gap on the yuan between domestic and overseas markets when the yuan went global. Capital accounts may be affected by the resulting arbitrage, leading to a net loss of Chinese wealth.

http://www.yicaiglobal.com/news/50027679.html