Globalized RMB Yuan To Stabilize World Economy

Posted by: : Paul EbelingPosted on: June 29, 2014 Globalized RMB Yuan To Stabilize World Economy

Globalized RMB Yuan To Stabilize World Economy

The globalization of the RMB Yuan, or renminbi will not only benefit the Chinese economy, but generate global economic stability, a senior banker has said.

The Yuan (CNY) did not depreciate during the Y 1997 Asian financial crisis or the Y 2008 global financial crisis, helping stabilize the global economy, Tian Guoli, chairman of the Bank of China, said at a forum in London last week, according to Friday’s edition of the People’s Daily.

China’s economy ranks 2nd in the world and its trade ranks #1, so it is thought that use of the RMB in cross-border trade will be a mutually beneficial move for China and its trade partners.

CNY has garnered the basic qualifications to become an international currency as China’s GDP (gross domestic product) took 12.4% of the world’s total and its foreign trade 11.4% of the world’s total in Y 2013, Tian said.

According to the central bank, CNY flow from China hit 340-B (US$55.74-B) in Q-1 of Y 2014, replenishing offshore RMB Yuan  fluidity. The balance of offshore RMB deposits hit 2.4-T at the end of March, 1.51% of all global offshore deposits. Offshore trade between CNY, and foreign currencies 2X’d in Q-1 of Y 2014 Vs Q-4 of Y 2013.

Analysts note 5 steps in RMB internationalization, as follows;

1. RMB Yuan used and circulated overseas.

2. RMB Yuan as a currency of account in trade.

3. RMB Yuan used in trade settlement.

4. RMB Yuan as a currency for fundraising and investment, and

5. RMB Yuan as a global reserve currency.

Some of china’s neighboring countries and certain regions in developed countries are circulating RMB Yuan, indicating the 1st step is achieved.

Data provider SWIFT’s RMB Yuan tracker showed that in May, 1.47% of global payments were in RMB Yuan, a small amount compared to the global total,  but up from 1.43% in April. This indicated progress in steps 2 and 3 above.

Some countries in Southeast Asia, Latin America and Africa have or are ready to take RMB Yuan as an official reserve currency. It signals the steps 4 and 5 are expanding.

Investors are optimistic about RMB Yuan’s globalization.

Bank of China’s global customer survey shows that over 50% of the respondents expect RMB Yuan cross-border transactions to rise by 20 to 30% in 5 yrs. And 61% of overseas customers say they plan to use or increase use of RMB Yuan as a settlement currency.

The head of the Center for China in the World Economy under Tsinghua University, said RMB Yuan internationalization is a long-term process and should be made gradually based on China’s financial reforms, including freeing interests and reforms on foreign exchange rates.

Dai Xianglong, former PBOC governor of China, forecast that it will take about 10 to 15 yrs to achieve a high standard of RMB Yuan internationalization.

Among the latest moves toward RMB Yuan internationalization is the naming of 2 clearing banks to handle RMB business overseas.

The central bank announced last Wednesday that it has authorized China Construction Bank to be the clearing bank for RMB Yuan business in London, and the next day named the Bank of China as clearing bank for RMB Yuan business in Frankfurt, Germany.

Stay tuned…

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Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.
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