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Thread: China aims to settle nationwide trade in yuan by 2011

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    China aims to settle nationwide trade in yuan by 2011

    BEIJING, March 2 | Wed Mar 2, 2011 5:43am EST

    BEIJING, March 2 (Reuters) - China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role.

    In a statement on its website ??????, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily. (Reporting by Zhou Xin and Koh Gui Qing; Editing by Ben Blanchard)
    China aims to settle nationwide trade in yuan by 2011 | Reuters

    It seems that China is setting itself up to replace the US dollar as a world reserve currency??

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    Re: China aims to settle nationwide trade in yuan by 2011

    I wasn't sure how to add the corroborating article while maintaining the BN rules... so :

    China to allow all trades to settle in yuan, encourages use as reserve currency - International Business Times
    By Hao Li | March 2, 2011 10:19 AM EST

    China aims to allow all exporters and importers to settle cross-border trades in the yuan by 2011, according to the Chinese central bank, reported Reuters.

    Moreover, China will “respond to overseas demand for the yuan to be used as a reserve currency” and allow the yuan to flow back into China more easily.

    This is all part of China’s plan for the internationalization of its currency, which may, in the decades to come, threaten the global ‘market share’ of other currencies like the US dollar.
    Not sure about anyone else, but I don't see this as a good thing... especially considering they OWN so much of the US through debts... and it's not that far back in the history books to see what the Chinese can do to people they like (fellow Chinese)... nevermind to those they don't like... possibly those that owe them their livelihoods...

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    Re: China aims to settle nationwide trade in yuan by 2011

    Umm... is it that nobody cares, or that everyone agrees that the chinese are intent on taking america's place as the world reserve currency?

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    Re: China aims to settle nationwide trade in yuan by 2011

    I doubt that China is intent on replacing the USD as the worlds reserve currency. I do think China is intent on not being reliant on the USD to settle trades with its trading partners. It gives up to much control over its economic actities in such cases, not to mention pride issues
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    Re: China aims to settle nationwide trade in yuan by 2011

    Quote Originally Posted by BmanMcfly View Post
    Umm... is it that nobody cares, or that everyone agrees that the chinese are intent on taking america's place as the world reserve currency?
    I don't know about Lord T, but maybe 30, 40 years down the road the PRC could see the RMB replacing the dollar. Now, it doesn't make that much sense to do it as it allowing the RMB to act like a reserve currency would create possibilities for currency volatility. That's the last thing the PRC wants. Furthermore, I suspect in those trade settlements, the PRC is going to dictate the rates. It's not going to be the kind of exchange we see in the rest of the world where importers and exporters decide themselves which rates to use. When China allows that free flow of currency, it's another story.

    This just seems like the next step for the PRC. And some currency appreciation may help pare down the inflation there.
    "If your opponent is of choleric temperament, seek to irritate him." - Sun Tzu

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    Re: China aims to settle nationwide trade in yuan by 2011

    I suspect that given China's repeatedly expressed concerns about the value of the dollar, the move is probably about reducing medium- and long-term dollar risk exposure. The lack of medium- and long-term fiscal consolidation in the U.S. and absence of imminent work toward that end e.g., the recent budget proposal was a status quo document, is raising concern outside the U.S. The IMF has called the effort in the U.S. slower than expected. China has repeatedly expressed concerns about the value of the dollar. By itself, this move probably won't have a huge impact on the U.S. The next logical move, capping (either a hard cap, which would be more severe, or a relative cap as a % of China's overseas currency holdings) and then slowly reducing China's dollar holdings, could collide with the still prevalent status quo fiscal approach, once the imbalances associated with the structural budget deficit begin to overwhelm cyclical factors.

    At this point, it remains to be seen what will trigger a genuine push for medium- and long-term fiscal consolidation in the U.S. The economy has experienced sustained growth for nearly two years now. Two fiscal commissions offered a number of concrete recommendations, all of which were ignored in the budget proposal. That the status quo budget was introduced even as numerous states are already struggling with pension/health benefit imbalances and parts of Europe experienced debt crises is quite remarkable. The complacency is almost surreal.

    IMO, aside from the first symptoms of a crisis where U.S. interest rates begin to rise appreciably due to changing risk premia (as opposed to inflation), the fiscal policy inertia in the U.S. might not be shattered unless one or more of the following occur:

    1. The U.S. is given a negative outlook by the credit rating agencies (something I think will happen by the end of 2012 on the current course) and/or suffers its first downgrade in its AAA credit rating.
    2. The IMF takes the U.S. to task in its next Article IV review, calling U.S. fiscal policy off course, inconsistent with the fiscal imbalances the nation changes, and warning that such an approach is increasing global credit and currency market risks.
    3. The combination of foreign economy growth opportunities (competition for capital) and growing foreign worries about U.S. fiscal policy lead to the development of a persistent and appreciable trend toward reduced foreign investment in the U.S., including financing of the U.S. government.

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    Re: China aims to settle nationwide trade in yuan by 2011

    Quote Originally Posted by Lord Tammerlain View Post
    I doubt that China is intent on replacing the USD as the worlds reserve currency. I do think China is intent on not being reliant on the USD to settle trades with its trading partners. It gives up to much control over its economic actities in such cases, not to mention pride issues
    No, I don't expect that this could happen in an overnight fashion... HOWEVER, China IS definitely positioning themselves in such a way that WHEN the US crashes that they will be in the best position to take that type of control over the world economy... OR, at bare minimum, they are positioning themselves so that when America crashes that they will be mostly unaffected.

    Quote Originally Posted by obvious Child View Post
    I don't know about Lord T, but maybe 30, 40 years down the road the PRC could see the RMB replacing the dollar. Now, it doesn't make that much sense to do it as it allowing the RMB to act like a reserve currency would create possibilities for currency volatility. That's the last thing the PRC wants. Furthermore, I suspect in those trade settlements, the PRC is going to dictate the rates. It's not going to be the kind of exchange we see in the rest of the world where importers and exporters decide themselves which rates to use. When China allows that free flow of currency, it's another story.

    This just seems like the next step for the PRC. And some currency appreciation may help pare down the inflation there.
    In recent terms, ya, that makes sense... and the longer term, I would have agreed if you had put 5-10 years rather then 20-30.

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    Re: China aims to settle nationwide trade in yuan by 2011

    Quote Originally Posted by donsutherland1 View Post
    I suspect that given China's repeatedly expressed concerns about the value of the dollar, the move is probably about reducing medium- and long-term dollar risk exposure. The lack of medium- and long-term fiscal consolidation in the U.S. and absence of imminent work toward that end e.g., the recent budget proposal was a status quo document, is raising concern outside the U.S. The IMF has called the effort in the U.S. slower than expected. China has repeatedly expressed concerns about the value of the dollar. By itself, this move probably won't have a huge impact on the U.S. The next logical move, capping (either a hard cap, which would be more severe, or a relative cap as a % of China's overseas currency holdings) and then slowly reducing China's dollar holdings, could collide with the still prevalent status quo fiscal approach, once the imbalances associated with the structural budget deficit begin to overwhelm cyclical factors.

    At this point, it remains to be seen what will trigger a genuine push for medium- and long-term fiscal consolidation in the U.S. The economy has experienced sustained growth for nearly two years now. Two fiscal commissions offered a number of concrete recommendations, all of which were ignored in the budget proposal. That the status quo budget was introduced even as numerous states are already struggling with pension/health benefit imbalances and parts of Europe experienced debt crises is quite remarkable. The complacency is almost surreal.

    IMO, aside from the first symptoms of a crisis where U.S. interest rates begin to rise appreciably due to changing risk premia (as opposed to inflation), the fiscal policy inertia in the U.S. might not be shattered unless one or more of the following occur:

    1. The U.S. is given a negative outlook by the credit rating agencies (something I think will happen by the end of 2012 on the current course) and/or suffers its first downgrade in its AAA credit rating.
    2. The IMF takes the U.S. to task in its next Article IV review, calling U.S. fiscal policy off course, inconsistent with the fiscal imbalances the nation changes, and warning that such an approach is increasing global credit and currency market risks.
    3. The combination of foreign economy growth opportunities (competition for capital) and growing foreign worries about U.S. fiscal policy lead to the development of a persistent and appreciable trend toward reduced foreign investment in the U.S., including financing of the U.S. government.
    Yes, China has made a number of moves showing that they are moving away from the dollar.... I'd be worried for the day that this hits a crescendo where the world in unison rejects the dollar... all those dollars will come back this way and we'll probably see a devaluation of the dollar... numbers I've heard thrown around most are a 40-60% devaluation. Overnight, when it occurs.

    Otherwise it will just show up as massive inflation... The model the US should follow is the icelandic model of rejecting the debts.

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    Re: China aims to settle nationwide trade in yuan by 2011

    Quote Originally Posted by BmanMcfly View Post
    In recent terms, ya, that makes sense... and the longer term, I would have agreed if you had put 5-10 years rather then 20-30.
    Not at their current GDP per capita or even 5-10 year projections. China needs to have serious overall wealth increases per capita before it can risk currency volatility. It has more to do with political stability then anything else. Remember that the PRC's "communist" leaders are more concerned with staying in power then anything else. Everything else is a means to that end. 5-10 years is hardly sufficient to create a large domestic market, sufficient per capita wealth to deal with free floating currency shocks and the overall stability those bring.
    "If your opponent is of choleric temperament, seek to irritate him." - Sun Tzu

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