Testimony of a Mongolian Singer (2015)
The Depreciation of the Chinese Yuan - 2014
Dawn of Asia Magazine
The Internatinalization of the Chinese Yuan (2012)
The Fallacy of the US Dollar (2011)
Faces Behind the Label (2010)
Stop The Buck - The RMB Should not Rise (2010)
The Speed Of Money (2009)
Marginalized Migrants in China (2008)
Minority Peoples Groups (2004)

 

 The Internationalization of the Chinese Yuan

                                                   By Chuck Chan, Management Consultant

The Chinese yuan internationalization strategy is a regional one as the yuan has partially dominated the Asian Pacific region to begin with.  For export benefit, countries like Japan and Germany refuse to become internationalized currencies.  To become an internationalized currency,  it has to be able to trade freely in the world market.  It has to become a major agent for international trade and its valuation will have to be determined by the global market. 

“In November 2010, Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao ...announced that Russia and China had decided to use their own national currencies for bilateral trade, instead of the U.S. dollar. The yuan started trading against the ruble in the Chinese bank market in Shanghai immediately; and in December 2010 began trading on the Moscow Interbank Currency Exchange. This is the first time that the yuan has traded outside of China and Hong Kong.

In October 2011, China is considering a proposal to set up a regional bank to help its small and medium enterprises invest in Southeast Asian neighbors and fund infrastructure projects in an effort to buy goodwill in the region. The bank will also settle China-ASEAN trade in yuan, another step in China’s long campaign to make the yuan a regional currency. At that moment, if China might come to the aid of Europe, but if it did, China might insist that its contribution be at least partly denominated in renminbi.

In January 2012, China and the United Arab Emirate signed a three-year currency swap agreement worth 35 billion yuan ($5.54 billion) that the People’s Bank of China said would boost two-way trade and investment. The agreement was signed in Dubai and represents one more in a string of arrangements to facilitate greater use of China’s yuan in international trade.

In November, 2010, HSBC (Hong Kong & Shanghai Banking Corporation) in Hong Kong predicted that at least half of China’s trade flows with emerging market countries could be settled in renminbi within three to five years, from less than 3 percent in 2010.  In other words, HSBC was predicting that nearly $2 trillion worth of trade flows could be settled in renminbi annually, making it one of the top three global trading currencies. If the current trends continue, HSBC may have underestimated the extent to which the renminbi will be internationalized by then. “1

China has determined to follow a road-map for the yuan to become regional internationalized: it has already set up bilateral currencies exchange agreements with 13 countries inclusive of Indonesia, Malaysia, S. Korea, Argentina, Iceland etc.  In 2010, these exchange transactions has reached 78 billion US dollars.  In the first quarter of 2011, the exchange has also reached 22 billion US dollars.  The yuan was traded mainly through Hong Kong as the major financial center for handling yuan deposits and yuan bonds.  China has begun this action in the 5 Special Administrative Regions (SARS) since 2009.  In 2011, it has expanded to the whole country, making possible the yuan exchange with Hong Kong directly.  The Chinese road-map for internationalization of the yuan is a “RMB Circle”.  The yuan is not going to replace the US dollar.  Its strategy is to become one of the international basket of currencies by 2015. 2

In September, 2012, the United States devaluated its currency again by the QE3 monetary policy.  More than twenty years ago, Japan was forced by the US to appreciate its currency value.  This has put Japan into deep recession for the last 20 years or more.  Now, the United States is using the same strategy against China by upholding their “China Threat” theory.  For every one percent of appreciation of the Chinese yuan, China would lose 30 billion US dollar in its FOREX (The Foreign Exchange Reserve of China is dominated by US dollar and nearly half of it is US government bonds).
 
Japan is following the US footsteps by devaluating its currency now with the new Prime Minister in the picture.  The currency and economic warfare by circle containment of China has already begun.  If the Chinese yuan will appreciate again, we will face a great inflational pressure within this country.  Hot money will continue to pour into the Chinese economy to cause a catastrophic phenomenon similar to Japan 20 years ago.  How do we respond with this economic threat requires the wisdom of our China economists now.