Author: cestmoi

Crude Oil Priced in RMB?   [Copy link] 中文

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Post time 2017-10-16 20:40:57 |Display all floors
sfphoto Post time: 2017-10-16 13:06
You're correct here in that there's not enough excess liquidity in financial markets for RMB to bec ...
USD is linked to the whims of the US Fed in the same way that the RMB is linked to the PBoC. Both have the ability to issue new money, control its supply, set up reserves, etc.

But you must agree China's control of RMB is much much stricter than Fed's control of USD?

For example, Fed's interest rate changes only affect availability of USD through higher or lower price, while PBoC sets flat out limits for in and outbound investments.

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Post time 2017-10-16 20:46:08 |Display all floors
cestmoi Post time: 2017-10-16 19:43
To clarify for everyone else:
  • "medium of exchange" is reserve currency held in nostro/vostro f ...
  • RMB is not fully convertible, why is that and what are the concerns that PBoC has with a fully convertible RMB?

    I think that the reasons are more political than financial or economical. Chinese government wants to control everything (for better or worse), and certainly in today's world money comes first in that.

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    Post time 2017-10-16 21:33:47 |Display all floors
    Jaaja Post time: 2017-10-16 20:40
    But you must agree China's control of RMB is much much stricter than Fed's control of USD?

    For  ...
    ... in and outbound investments.

    That's euphemism for an explosive outflow of RMB from PRC, mainly to immigration countries. The money would go towards feeding the economies there rather than stay in China and provide the capital for startups here. Like many other countries, China is trying to attract innovative startups. Good on them.

    As some reputable newspapers and investment banks pointed out, the gross debt-to-GDP ratio is now over 300% and the household debt-to-GDP is 45%. Much of the borrowing binge was fueled by real estate speculation. Look at the real estate prices in cities like Shanghai and Xiamen, compare an old 100 square meter flat from 10-15 years to what it is worth now and we get an inkling of the amount of money the PRC Chinese put into speculation, then you will see there is a huge bubble.

    PRC needs the private sector money to stay inhouse, and not go overseas.

    Yes, I am aware the USA has controls on outflow of USD and on transactional amounts that must be reported (>= US$10k). I do not begin to doubt that when and if the needs arise, USA would implement more stringent control as well as take other drastic measures like the La Plaza Accord of 1985.

    However, I am more interested in
    • the weight of the RMB in a basket of currencies in nostro/vostro account between banks for settling crude oil purchases;
    • when the RMB will be fully convertible
    Let the dice fly high

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    Post time 2017-10-17 00:27:18 |Display all floors
    cestmoi Post time: 2017-10-16 19:09
    Okay, great answers from most of you.

    If I am not mistaken, Central Banks use the Bank of International Settlements (BIS) based in Basel, Switzerland as the Central Bank of Central Banks for buying/selling/trading their reserve currencies. Before the adoption of fiat currencies, Central Banks used to hold their reserves in gold and would use the BIS to transfer their gold reserves to each other. This was how war reparations were paid by Germany to Western nations.

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    Post time 2017-10-17 00:56:00 |Display all floors
    This post was edited by sfphoto at 2017-10-17 07:34
    Jaaja Post time: 2017-10-16 20:40
    But you must agree China's control of RMB is much much stricter than Fed's control of USD?

    For  ...

    You're right about China's control of the CAPITAL account but not the CURRENT account. So that affects the movement of CAPITAL in/out of China but not the transfer of MONIES in/out of China for trade/settlement purposes.

    But the movement of CAPITAL in/out of China has nothing do with the RMB as the reserve currency for foreign Central Banks or as trade/settlement currency for foreign trade. As China does NOT control the CURRENT account for foreign trade, that means foreign banks are free to hold RMB deposits to serve their clients and are free to trade their RMB for other currencies in the financial markets. They are also free to denominate their loans in RMB. Hong Kong and London are the two leading financial centers offering RMB clearinghouse services.

    I was disputing your earlier characterization of the RMB as being subject to the "whims of the Chinese government" while the USD is not. The PBoC -- not the Chinese government -- decides the monetary policy which affects M1, M2 and M3 (supply of money). The Chinese government in turn decides the economic policies which affects GDP growth.

    I think what you're saying is that the USD is under "free float", i.e., not subject to intervention by the US Fed in financial markets even though monetary policy decided by the US Fed affects the supply of the USD. However, the US Fed broke this rule when it bought toxic assets in the form of Mortgage-backed Securities from private banks after the global financial crisis struck in 2008. The US Fed then started buying US government debt as part of its QE programs. Both the ECB and JCB followed suit afterwards.

    In other words, all three Central Banks of the Capitalist World -- US Fed, ECB and JCB -- intervened in the financial markets by injecting trillions of USD, EURO and YEN into ther money supply which had the effect of debasing their fiat currencies. This is exactly the kind of intervention that "free market" Capitalists do not want except when bailing out their private banks.

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    Post time 2017-10-17 03:30:04 |Display all floors
    seneca Post time: 2017-10-16 16:21
    I believe that all Chinese are deeply conservative and anti-progressive. The problem with Chines ...

      In my book, you don't really have to fret about their revisionist views of history or even their perceived antagonism towards America, largely because they are mostly braggarts hoping to attract eyeballs or seeking fame in China. Case in point: Sima Nan, a soi-disant conservative pundit who used  the media to zing and cock a snook at liberals in China -just like Trump using the presidency as a bully pit to upbraid the Democrats-left China for America two or three years ago, and shifted gears once he was hired by a Chinese-run TV channel in America.  Meaning you won't find him lambasting capitalism and America like he did in China after becoming an American citizen.

    Kong Qingdong,  another avowed conservative ,  once used some in-your-face remarks to describe the people of Hongkong, calling them dogs. For good measure, he has taken to calling Western values a load of cobblers, saying only a seer and Zelig like him would be able to help China seek redress. You might think a Chinese conservative like him wouldn't like to visit a sinful place like America. That's not the case; he has been to America just like other Chinese conservative figureheads  or foot soldiers.

    One of them even  said " trashing America is  my job, whereas living in America is my life"  when asked why would they simply act differently once they set foot in America.

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    Post time 2017-10-18 18:35:43 |Display all floors
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