Author: cestmoi

Crude Oil Priced in RMB?   [Copy link] 中文

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Post time 2017-10-23 10:10:04 |Display all floors
sfphoto Post time: 2017-10-23 07:04
I think you're missing the picture.

China only controls its CAPITAL account not those of foreign c ...
He can leave them in the Singapore bank, exchange them for SGD to buy property in Singapore or exchange them for USD to buy property in the USA.


Well I interpreted the topic of this thread as element of internalization of RMB (specifically in oil trade) in such way, that entities in Singapore or USA or anywhere could use RMB as trade currency between themselves, not just with Chinese entities.

In this perspective, I didn't mean current situatiion, but the suggested situation where RMB could be accepted globally, and the Singaporean trader would not need to exchange RMB to USD or SGD to make transaction (capital or otherwise) in any respective country. The RMB would circulate in international financial system as RMB, where it eventually would be invested as capital for industries in which China does not allow direct investment.

I forget if it was you or someone else, who stated that China does not want to see RMB used as currency for speculative or morally questionable investments or trade - and that comment was not about China's closed capital account, but generally about RMB.

For example if a Chinese individual has an offshore enterprise, let's say exporting bottled clean air to China. Or something else totally imaginary, not neccessarily even real items. He would regardless get paid from China in RMB to his offshore account, and then he could invest that RMB to property or whatever abroad.

What function would China's controls on foreign capital investments serve in this situation? Wouldn't they be all to easy to avoid with such setups?

My question is essentially, whether RMB can become international currency (in oil or any other trade), as long as China tries to desperately control its capital account so aggressively?

In the above example, if China prevented the trader from doing "fake" business that way, he would simply ask his Chinese clients to pay in USD instead - so much for internalization of RMB.

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Post time 2017-10-23 14:13:28 |Display all floors
sfphoto Post time: 2017-10-23 07:04
I think you're missing the picture.

China only controls its CAPITAL account not those of foreign c ...

From your comments and examples I gather, that all you are talking about is moving the effort and responsibility of converting RMB to USD (or other currency) away from Chinese entities, and to the foreign entities - which in my opinion is much noise about nothing.

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Post time 2017-10-24 11:17:31 |Display all floors
Jaaja Post time: 2017-10-23 10:10
Well I interpreted the topic of this thread as element of internalization of RMB (specifically i ...

I think you're confused.

Foreign currencies such as the USD or RMB can be used ONLY in foreign but not domestic transactions. So it doesn't matter if the Singapore oil trader receives USD or RMB in his bank account in Singapore because he needs to convert those to SGD for any domestic transaction for whatever investment purposes. No US or Chinese entities have control over offshore transactions involving USD or RMB, whether in Singapore or elsewhere.

The only way for Chinese entities to get involved is IF and ONLY IF the Singapore oil trader decides to invest his RMB in China, by buying property, stocks, bonds, etc. But those investment-related transactions are restricted by the Chinese State. Same rule applies to the Chinese trading firms who are NOT allowed to use their USD holdings for investment purposes because those affect the CAPITAL account of China. There are trading companies using "fake invoicing" to allow the illegal transfer of USD for investment purposes such as overseas real-estate speculation but Chinese authorities are cracking down on those illicit flows.

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Post time 2017-10-24 13:15:45 |Display all floors
This post was edited by Jaaja at 2017-10-24 13:16
sfphoto Post time: 2017-10-24 11:17
I think you're confused.
Foreign currencies such as the USD or RMB can be used ONLY in foreign but not domestic transactions.

Ever tried to cross by land from China to some SE Asian neighbour, like many foreign backpackers do? Guess what currency they must use to purchase visa-on-arrival or bribe local officials there? It's not the local currency and it's not RMB, it's USD.

Hardly applies to persons involved in serious international trade, but goes to show that USD is accepted currency in many places where it is not an official currency - even on China's backdoor. Much unlike RMB - and if RMB is to gain same status as international currency (trade or otherwise) as USD, that needs to change.

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Post time 2017-10-24 13:33:57 |Display all floors
This post was edited by sfphoto at 2017-10-24 13:42
Jaaja Post time: 2017-10-24 13:15
Ever tried to cross by land from China to some SE Asian neighbour, like many foreign backpackers do ...

I was able to use RMB in Thailand as well so what's your point? In fact, China is already the number one source of tourists in Thailand and they all use UnionPay cards to pay their cash transactions which debit their RMB bank accounts back home while UnionPay handles the payment to the THB merchant account in Thailand, all done with the RMB not the USD.

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Post time 2017-10-24 14:02:50 |Display all floors
Jaaja Post time: 2017-10-23 14:13
From your comments and examples I gather, that all you are talking about is moving the effort and  ...

There is the issue of liquidity in foreign exchange markets which affects the RMB more than the USD. If there's only a few billions of RMB available, then the amount of foreign exchange transactions is limited by the RMB liquidity. The USD has no problems with liquidity because the USA imports trillions of goods paid for in USD and exports trillions of USD as CAPITAL sitting in offshore tax havens which gets invested worldwide. That's how foreign countries get their USD reserves, from trade and investments.

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Post time 2017-10-24 16:32:31 |Display all floors
sfphoto Post time: 2017-10-24 13:33
I was able to use RMB in Thailand as well so what's your point? In fact, China is already the numbe ...

My point was that USD is accepted unofficially in much wider range of countries and functions than RMB. That's not really relenvant to this topic otherwise, except for the reasons why it is so.

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