W.P. Norton

Archive for the ‘China’ Category

LONDON, IRAN SHARE YEN FOR THE YUAN

In China, Finance, The Dollar, W.P. Norton, Yuan on October 19, 2012 at 1:33 am

UPDATE: INTERNATIONAL MONETARY FUND INTEGRATES RENMINBI INTO GLOBAL RESERVE CURRENCY SYSTEM. The IMF will add the “people’s currency” to its basket of reserve currencies on Oct. 1.

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In 2012 the United Kingdom made plain its intent to become the West’s global hub of trade in Chinese yuan, a currency Iran acknowledges taking as payment for oil exports to Beijing. What will be the fate of the USD as Chinese cash goes global?

“The key remaining questions concern whether or not the RMB 
will become an important international currency anytime soon, and 
whether it is poised to pose a serious challenge to the US dollar’s 
domination of the international monetary system.”
Yu Yongding, writing in Xinhuanet from Beijing on Sept. 11, 2012

The City of London entered the rich offshore market for trading China’s ambitious renminbi, or yuan, in April 2012. The move may prove a bad omen for the U.S. dollar.

Just this week, Citibank announced that it will be the first global bank to issue commercial cards for large multinational clients doing business in China. The Oct. 15 statement came the same day Citi reported its renminbi transactions in London grow 40 percent since the beginning of 2012. The bank also reported an 80 percent increase in Citi offshore-RMB accounts domiciled in London.

At a Sept. 14 press conference in Hong Kong, London’s Lord Mayor, David Wootton, offered a list of reasons Westminster has its eye on the former British colony.

Hong Kong has “the right infrastructure, the right currency and settlement and mechanisms” to serve as China’s closest offshore RMB exchange hub, Wootton said. And London, he said, seeks to service the offshore trade in the RMB as Hong Kong’s partner, not its competitor.

A survey issued by a Chinese bank in early 2012 said this would be the year the renminbi takes its place alongside the dollar and the euro as a global settlement currency. Early bullishness on the yuan has led observers like Yu Yongding to wonder if that schedule needs expanding.

“It seems that the RMB’s internationalization has been progressing without anyone really noticing,” Yu wrote from Beijing in Xinhuanet on Sept. 11.

The old hundred-yuan note, hardly as colorful as its successor.
“The key remaining questions concern whether or not the RMB will become an important international currency anytime soon, and whether it is poised to pose a serious challenge to the US dollar’s domination of the international monetary system.”
What are the ramifications for the dollar of Chinese cash going global? Let’s turn to Iran for a clue:

Teheran has begun selling some of its oil to China in exchange for yuan, according to a May 8 Reuters report by Raissa Kasolowsky. Beijing buys about $20 billion worth of Iranian crude each year, which makes the OPEC member the single largest supplier of crude oil to China.

It could take China longer than it hopes to raise the rank of the renminbi to that of the venerable British pound, or its newish neighbor, the euro. But if whisperings prove true that oil-producing states are imagining a future denominated in yuan as well as dollars, you can be sure that Wall Street and Westminster are keen to find an answer to Yu’s question.

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