What China needs to do to make the yuan more international – Shirley Yu

 

Shirley Yu

China’s currency, the yuan, still has a long way to go on its road to become an international currency, says political economist Shirley Ze Yu at the S&P Global. The need for China to internationalize its currency “is both strategic and opportune,” Yu said.

The S&P Global:

“The BRI (Belt&Road Initiative) region is China’s natural region to succeed in building a multilateral currency order, to rival the 20th-century U.S.-dominated global monetary system,” said Shirley Ze Yu, a political economist and a fellow at Harvard Kennedy School’s Ash Center.

To be sure, China needs to allow the yuan to float more freely. The digital yuan won’t be “a standalone entity,” Yu said, adding, the digital yuan cannot become a global center currency, unless the yuan “itself becomes one.”

The depth and width of the capital market is still the most significant variable, because no country or individuals would hold on to a yuan-denominated asset if there is insufficient market liquidity globally. The yuan “has a long road to travel still,” she said.

Yu said that it is crucial for China to internationalize the yuan now, especially since the U.S. dollar has enjoyed its reign as “the ultimate currency of last resort” post-World War II and dominates the global monetary system. The need for China to press the gas pedal on its yuan internationalization agenda also became more pronounced recently as the U.S. announced sanctions against Chinese and Hong Kong officials. China has to be prepared for its banks to be excluded from international monetary clearing systems, including SWIFT and CHIPS systems, down the line, she said.

The need for China to internationalize its currency “is both strategic and opportune,” Yu said. “In the current decade, we might inevitably see two parallel global monetary systems” — the dollar-based system and a rising and regional yuan-based system.

More at the S&P Global.

Shirley Ze Yu is a speaker at the China Speakers Bureau. Do you need her at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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Renminbi lost its chance as an international currency - Arthur Kroeber

Arthur Kroeber

For a while, China's Renminbi or Yuan looked like a potential competitor in international markets. But China has lost that opportunity, says economist Arthur Kroeber in OZY. “Who’s going to issue or buy bonds in a market where liquidity can be turned off at the drop of a hat?” he asks.

OZY:

Global use of the renminbi would reduce exchange rate risks for Chinese companies and minimize exposure to sharp drops in dollar liquidity — one driver of the fall in Chinese exports during the financial crisis. 

“There was both an objective to use renminbi internationalization as a wedge to drive finance sector reform, but there was also a very strong and widely held view that having a more fully independent currency was really important to secure China’s economic sovereignty,” says Arthur Kroeber, managing director of research company Gavekal Dragonomics. 

Zhou (Xiaochuan, then governor of the People’s Bank of China)’s initiative came at an awkward time. Despite having a large economy, China had neither deep financial markets facilitated by an open capital account nor widespread confidence in its currency — elements deemed “fundamental determinants” of international currency status by Harvard economist Jeffrey Frankel. 

Yet the central bank pushed on, creating an offshore market for renminbi debt centered in Hong Kong. By 2014, annual offshore issuance had climbed to Rmb112 billion ($16 billion), according to Dealogic. The offshore exchange rate is independent of the controls used by the central bank on the onshore rate, which limits moves against the dollar to 2 percent in either direction of a daily fix. 

But in August of 2015, the central bank set the daily fix sharply weaker, inducing a shock devaluation in the normally stable onshore rate. Global markets convulsed and the offshore rate pushed below its onshore counterpart, spurring massive capital outflows on fears of a further sharp depreciation. Ultimately, Beijing tightened capital controls to stem renminbi outflows, which cut off liquidity to the offshore market. 

Kroeber contrasts this move to the U.S. decision in the 1960s not to throttle the nascent eurodollar market when an offshore pool of dollar liquidity began ballooning in Europe. China’s decision stabilized the renminbi, he said, but left it bereft of credibility as an international financial currency. “Who’s going to issue or buy bonds in a market where liquidity can be turned off at the drop of a hat?” he asks. 

This year, offshore renminbi bond issuance totaled just Rmb16 billion ($2.3 billion) at the end of September compared with onshore issuance of Rmb4.5 trillion ($635 billion), Dealogic data show.

More in OZY.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.  

US dollar is heading for a crisis - Jim Rogers

Jim Rogers

The trade war between China and the US is taking another casualty, says super-investor Jim Rogers: the US dollar. He will no longer bet on the US currency, as a downturn is nearing fast in a few years' time, he tells according to News Max. Although for gamblers, buying US dollars for the short run might be an opportunity. In the long run he will switch to China's renminbi or gold.

News Max:

International investor Jim Rogers reportedly says “doomed” dollar fundamentals are “horrible,” but he’s buying it to prepare for the U.S. currency’s last-gasp rally. 

“People would think the U.S. dollar is a safe haven, it’s not. The fundamentals are horrible,” the chairman of Rogers Holdings told Real Vision in a recent interview. “Nobody in his right mind would buy the U.S. dollar, but I own a lot…because I’m not in my right mind. I’m assuming that the rest of the world is not in its mind either and they’re all going to buy it,” said Rogers. 

He predicts the dollar will eventually get overpriced and turn into a bubble, and then the veteran investor, who founded the Quantum Fund with billionaire George Soros in the 1970s, will sell, MarketWatch explained. 

“I’m not very good at market timing but I would expect it to be in the next period of turmoil, which will be coming in the next two or three years,” he said. 

He doesn’t hold out much hope for the American economy because while he claims the U.S. is “the biggest debtor nation in the history of the world,” countries such as China, Russia and Brazil are seeking an alternate international currency.

More in News Max. Jim Rogers is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more guidance on your China risk from the experts at the China Speakers Bureau? Do check out this list.    

Renminbi: not yet close to US dollar as world currency - Wang Haiyan

China's Renminbi is not coming close to the US dollar as the world's reserve currency, says business analyst Wang Haiyan to Money Talks. Even though more trade is done in the Chinese currency, the US dollar is still dominant. China cannot expect export to save its economy but relies on domestic consumption. But that transition is not going overnight, Wang adds.

Wang Haiyan is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts on the ongoing trade war between China and the US? Do check out this list.