Simple, other countries can issue RMB bonds and Chinese central bank issues new RMB to Chinese buyers to buy them. The extra RMB will dilute the its value
Renminbi (RMB)/Yuan Appreciation & Internationalization
- Thread starter supercat
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Chinese industry is transforming from manufacturing lower end goods (which needs weaker yuan), to higher end manufacturing, with higher value, with doesn't need this current level of cheap yuan. Just ask yourselfs if Germany and Japan need cheap currency to export their high value added products around the world.
China will slowly phase out those lower end manufacturing industries to developing countries, while it will live of manufacturing high end tech goods + service based, consumption, economic model allowed by yuan appreciation.
This is true common prosperity, easier and more engaging jobs + more money. Not just money constitutes quality of living today.
China will slowly phase out those lower end manufacturing industries to developing countries, while it will live of manufacturing high end tech goods + service based, consumption, economic model allowed by yuan appreciation.
This is true common prosperity, easier and more engaging jobs + more money. Not just money constitutes quality of living today.
process has already begun. Chinese manufacturing is in transition period from low end to high end with industrial upgradation.
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supercat
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Right, a lot of payment in RMB hasn't been captured in these reports because CIPS transactions are not tracked by SWIFT. I've posted increases in CIPS number already
There are many reasons for internalizing RMB/CNY. Strengthening RMB is not high on that list, because China favors more of a stable currency approach. But even if RMB does strengthen, it's not really going to hurt it that much. Chinese products in high tech are 1/4 to 1/3 the price of western products. RMB appreciating even 15% isn't going to make a dent to its export competitiveness. Anyone who says that hasn't looked at what happened after the Trump tariffs. What China does want is a weaken USD and US backed system, because America is abusing its power of having the world's reserve currency and financial infrastructure. None of what happened in the past week would be happening if America was actually being fiscally prudent and not using USD & SWIFT to control other nations. So at this point, US control over these things is a national security issue for China. That's why China would like other countries to get off USD even if it has nothing to do with RMB usage.
So, China wants countries to trade with India in INR instead of USD. Although INR is fully non deliverable, so it has even more currency constraint than China. I think it will have a harder time to get accepted for trade
Remember, there are $200B of free floating offshore RMB out there.
China does not need to be the reserve currency. It just wants more control over its own transactions so that it can get sanctioned effectively or be holden to the whims of the fed. Being able to control your own currency is great at a time like this where your domestic companies can raise money through IPO and get the funding they need. You can control your own monetary expansion. Your companies don't need to go to NYSE or NASDAQ to get listed to get the necessary fundings.
I don't agree entirely with this thesis, because I think China accumulates so much USD it doesn't know what to do with them. It had been buying a lot of resources and storing them. It uses them on BRI projects rather than UST. But regardless, it's clear that China is using RMB for paying a lot of natural resources import now. And that will have continuous effect on its UST holdings. Why does China need more than $100B in treasuries?
There are many reasons for internalizing RMB/CNY. Strengthening RMB is not high on that list, because China favors more of a stable currency approach. But even if RMB does strengthen, it's not really going to hurt it that much. Chinese products in high tech are 1/4 to 1/3 the price of western products. RMB appreciating even 15% isn't going to make a dent to its export competitiveness. Anyone who says that hasn't looked at what happened after the Trump tariffs. What China does want is a weaken USD and US backed system, because America is abusing its power of having the world's reserve currency and financial infrastructure. None of what happened in the past week would be happening if America was actually being fiscally prudent and not using USD & SWIFT to control other nations. So at this point, US control over these things is a national security issue for China. That's why China would like other countries to get off USD even if it has nothing to do with RMB usage.
So, China wants countries to trade with India in INR instead of USD. Although INR is fully non deliverable, so it has even more currency constraint than China. I think it will have a harder time to get accepted for trade
Remember, there are $200B of free floating offshore RMB out there.
China does not need to be the reserve currency. It just wants more control over its own transactions so that it can get sanctioned effectively or be holden to the whims of the fed. Being able to control your own currency is great at a time like this where your domestic companies can raise money through IPO and get the funding they need. You can control your own monetary expansion. Your companies don't need to go to NYSE or NASDAQ to get listed to get the necessary fundings.
I don't agree entirely with this thesis, because I think China accumulates so much USD it doesn't know what to do with them. It had been buying a lot of resources and storing them. It uses them on BRI projects rather than UST. But regardless, it's clear that China is using RMB for paying a lot of natural resources import now. And that will have continuous effect on its UST holdings. Why does China need more than $100B in treasuries?
Regarding the impact of a stronger RMB on exports - just remember that the US slapped 25% tariffs on Chinese goods and the exports only increased since then. This shows that even with a currency appreciation of 25% China will remain very competitive.
Add to that almost every other currency (yen, inr and asean currencies) have devalued around 15-20% against usd. Add to that they don't have to pay any tariffs on multiple export items to usa which isn't the case for china. And just recently wsj did this article
The competitiveness that Chinese manufacturers have achieved is hard to fathom.
Regional supply chain network effects and scale are much bigger factors than wages or tariffs.
India has been pushing for usage of its own currency in trading settlement the 2nd hardest after China. Great for China, but also makes me wonder if people in the beltway are going to start smashing down on India after this.
Again, doesn't matter if it's india or indonesians or emiratis. China wants as much settlement/payment to be non USD as possible. It will encourage more countries to not trade in USD.
Again, doesn't matter if it's india or indonesians or emiratis. China wants as much settlement/payment to be non USD as possible. It will encourage more countries to not trade in USD.