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China’s Gambit: Renminbi on the International Stage [Copy link] 中文

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Post time 2012-10-29 05:15:25 |Display all floors
October 27, 2012


China’s Gambit: Renminbi on the International Stage



Source: OWS


To lessen its dependence on the U.S. Dollar and gain entry into the International Monetary Fund’s currency basket, the Chinese government has indicated that they would like to make the RMB fully convertible on the international stage by 2015 (which some say is a bit overly ambitious especially given the current global environment), and has increased the use of the RMB in international trade and investment.
-Mark Mobius, executive chairman, Templeton Emerging Markets Group
For more than a decade, China’s currency, the Renminbi (RMB), had been on a path of appreciation, but some weakness this year generated renewed talk about whether the currency is fairly valued against global currencies. As global equity investors, we are constantly faced with currency changes. This is an important factor when considering our investments, because currency movements impact companies’ earnings and operations. Of course, there are winners and losers with currency ups and downs. Export-driven companies can thrive with weaker national currencies, while domestic-driven industries are more likely to suffer. As one of the world’s global export powers, China has kept tight controls on its currency in order to enhance its investment and trade position, but those controls are starting to loosen.



Names and Places
Currency dynamics can be confusing, and there is a lot of confusion just in the differences in the Chinese currency names of RMB, CNY and CNH. To clarify, the People’s Republic of China dubbed its official currency the “Renminbi” in 1949.”Yuan” is the name of a unit of the Renminbi currency and is called one of two things depending on whether there is onshore or offshore use: CNY is in reference to RMB onshore in China (hence the “Y”), whereas CNH refers to RMB outside the China market offshore, primarily in Hong Kong (hence the “H”). Due to the effective segregation of the onshore/offshore RMB markets, CNY and CNH can often be subject to different demand and supply factors.
It’s also important to note that while the name Renminbi means “the people’s currency,” the short name for the RMB or Yuan in China is also called the “kuai” (literally means piece). Spoken with a different tone (tones in Chinese language are very important since the meaning can change dramatically with a different tone) “kuai” can also mean fast. And now it seems that pressure on the RMB’s convertibility is accelerating even though China’s central bank (the People’s Bank of China or PBOC) has suggested it would prefer to slow things down for a more prolonged transition. China is the second largest economy in the world and if it is destined to potentially become the world’s largest economy—which I believe it is—they will need to match that size with a position in currency leadership.


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Post time 2012-10-30 11:04:16 |Display all floors
RMB will be an more important roler in internal trade and investment.
Leaning...

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Post time 2012-10-30 13:21:05 |Display all floors
a gambit or a fear.?

fear it is so out of step, it joins the dinosaurs?
I've made my living, Mr. Thompson, in large part as a gambler. Some days I make twenty bets, some days I make none. There are weeks, sometimes months, in fact, when I don't make any bet at all because ...

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Post time 2012-10-30 14:07:58 |Display all floors
FROM BUYING AND SELLING TO BORROWING AND LENDING

Once China makes its Yuan an international reserve currency, it's aim should switch from earning foreign exchange to borrowing and lending in its own currency.  

The whole business of being a reserve currency is the same as that of being a bank issuing its own currency.  If you borrow, you keep your lenders hooked to your currency as otherwise, they cannot get paid what they lent you.  If you lend, you get paid with goods and services that you need, which is the only way interest can be paid in reality.   

Therefore, to make it worth the while, and to make it work, China would need to establish banks or correspondent banks all over the world.  China can make a good living lending and borrowing its own currency, without having to manufacture anything.  Sounds familiar?

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Post time 2012-10-30 14:11:58 |Display all floors
China will need to improve its' banking system if they want the RMB to become an international currency.  The current system is cumbersom, slow, and archaic.

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Post time 2012-10-30 14:40:34 |Display all floors
INDEED, THE VERY PURPOSE OF MAKING YOUR CURRENCY AN INTERNATIONAL RESERVE CURRENCY IS TO HAVE A MONOPOLY ON THE BORROWING AND LENDING EVERYWHERE WHERE YOUR CURRENCY IS BEING USED.  BUT WHAT GOOD IS A MONOPOLY ON BORROWING AND LENDING, IF YOU DO NOT HAVE THE BANKS WHERE SUCH TRANSACTIONS CAN BE ACCOMPLISHED?

ISN'T IT MORE ENJOYABLE TO MAKE A PROFIT OF 5% BY BORROWING AND LENDING, THAN TO INVEST IN MANUFACTURING, RISK THE FLUCTUATIONS OF SUPPLY AND DEMAND, TO EARN THE SAME AMOUNT?

OF COURSE, THE RISK IS THAT IT MAY BE SO GOOD THAT NOBODY WANTS TO MANUFACTURE ANYTHING ANYMORE.  THEN, CHINA WILL BECOME SO DEPENDENT ON FOREIGN PRODUCTION THAT IT LOSES CONTROL OF ITS OWN DESTINY.







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Post time 2012-10-30 14:51:35 |Display all floors
abramicus Post time: 2012-10-30 14:40
INDEED, THE VERY PURPOSE OF MAKING YOUR CURRENCY AN INTERNATIONAL RESERVE CURRENCY IS TO HAVE A MONO ...

OF COURSE, THE RISK IS THAT IT MAY BE SO GOOD THAT NOBODY WANTS TO MANUFACTURE ANYTHING ANYMORE.  THEN, CHINA WILL BECOME SO DEPENDENT ON FOREIGN PRODUCTION THAT IT LOSES CONTROL OF ITS OWN DESTINY.

Thats what happened to us.
Your own mind is a sacred enclosure into which nothing harmful can enter except by your permission. Arnold Bennett

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