PDA

View Full Version : China to experiment with trade settlement in yuan


Renegade
12-24-2008, 07:47 AM
Reuters, Wednesday December 24 2008

BEIJING, Dec 24 (Reuters) - China on Wednesday took a baby step on the road to making the yuan an international currency when it promised to allow its use in trade between a few provinces and neighbouring states.

The State Council, or cabinet, said the yuan could be used for the settlement of trade between the factory-rich Pearl River and Yangtze River Deltas and the Chinese territories of Hong Kong and Macau.

It also said that members of the Association of Southeast Asian Nations would be permitted to use yuan in their trade with China's southeastern provinces of Guangxi and Yunnan.

The yuan's role in trade settlement would be implemented on a trial basis, the cabinet said, giving no details on how it would operate.

At present Chinese and foreign firms doing business together denominate the vast majority of their trade in dollars and the rest in other major currencies such as the euro.

This has added a layer of complexity as Chinese firms have to route deals through the State Administration of Foreign Exchange to get their hands on the requisite currencies, in the process exposing Chinese firms to substantial currency risk.

The Chinese government has moved only gradually to expand the yuan's use beyond its borders for fear of attracting large hot money inflows, but it appears to have become somewhat bolder with its economy slowing sharply and exporters struggling.

Donald Tsang, Hong Kong's leader, said last Friday that China had agreed to let "eligible" companies settle their trade in yuan in Hong Kong.

Beijing has been using Hong Kong as a laboratory for globalising the yuan, letting Chinese banks issue yuan bonds in the territory as part of the experiment.
China's cabinet also announced that it would increase rebates on value-added tax paid by exporters of some high-tech machinery and electronic devices, the latest such move as the government seeks to cushion firms from the global slowdown.

China's exports caught the market by surprise when they fell in the year to November for the first time in more than seven years. Many economists expect a more serious deterioration in China's exports next year on the back of weakness in its major trade partners, notably the United States and the European Union.

The cabinet added that it would ease rules for firms engaged in the processing trade, assembling sophisticated inputs made outside China into finished products such as computers.

The government said it would tweak its directory that holds tremendous clout in guiding investment decisions, allowing more money to flow to sectors such as labour-intensive firms. The government had previously tried to smother these in efforts to diversify the economy and move up the value chain.

China's economy slowed to 9 percent in the third quarter after expanding 11.9 percent last year. The government is targeting 8 percent growth next year, which it sees as the minimum needed to generate enough jobs for its massive labour force, but many financial institutions have forecast a steeper slowdown. (Reporting by Zhou Xin, Langi Chiang and Simon Rabinovitch; editing by Stephen Nisbet)
http://www.guardian.co.uk/business/feedarticle/8168236

Ross
12-24-2008, 07:55 AM
That should blow-away the US Dollar parity peg in no time at all.

Sysiphus
12-24-2008, 01:38 PM
That should blow-away the US Dollar parity peg in no time at all.

Good riddance. The RMB-USD peg has caused nothing but misery for the US manufacturing sector.

frodo
12-24-2008, 02:09 PM
That's the beginning of the end of the U.S. Dollar as an international currency. American purchasing power will decrease as the dollar depreciates, however, if you are an American manufacturer with something to export, that's a good thing.

Sysiphus
12-24-2008, 05:32 PM
That's the beginning of the end of the U.S. Dollar as an international currency.

I'm all for it. We are addicted to imports in this country and in large part that is because the rest of the world has subsidized the strength of the dollar for years. Time to get people back to making real things.

Fiddlerdave
12-24-2008, 08:23 PM
As the billions (trillions, really) of dollars reserved by countries for trade use are dumped to wander the world because they have no more use, we will learn the meaning of the word "inflation".

Sysiphus
12-28-2008, 08:54 PM
As the billions (trillions, really) of dollars reserved by countries for trade use are dumped to wander the world because they have no more use, we will learn the meaning of the word "inflation".

Historically, when the US has had inflation, so has everyone else. Anyways, the prime motivator will not be less use of the dollar, but rather an increase in asset prices driven by scarcity. The current nasty recession is but a blip and will have little effect on this long term trend in hard asset prices, which will occur in all currencies with the possible exception of the Swiss Franc because that is still linked to gold.

Ross
12-28-2008, 10:30 PM
.
http://lolfed.com/wp-content/uploads/hank-renminbi.jpg
.