Renminbi (RMB)/Yuan Appreciation & Internationalization

tphuang said:

I cannot believe people can look at Japan which has not grown in GDP in 30 years and see that as a good outcome for money printing and buying up your own debts. And that's with jgb yield at 0.5%

If USD devalues by 30%, American economic and military power will be significantly weakened around the world.

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That is what seems to be dividing the world into blocks.

It is not what that senile guy said about the world is facing a competition between democracy and autocracy. Heck, who even knows what that word autocracy means. I don't.

The world is being divided into stagnant economies and growing economies.

I think is it much easier to break apart the former block than the latter.

supercat said:

The rise of RMB/CNY is talked about in the Western MSM more and more. Here is an article from FT:

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This is shocking to me, or not since it is from FT.
"contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB from playing a stronger role as an international and reserve currency"

What kind of wisdom is that? From what school?

Money is for trade, domestic and international. The usage of a currency should be directly in proportion to the products that the issuing country produces. A small room of deviation is normal but very limited. This fundamental point has nothing to do with account openness, so long as there is enough currency representing the product flowing in the market. Any openness more than that purpose is excessive. The over-representation of USD and Euro in trade is against the principle how currency should work and is imposed by factors outside of economy and trade.

The west "wisdom" is just a self indulging illusion of abnormally. Once again, western economists are not treating economy as a science.

taxiya said:

This is shocking to me, or not since it is from FT.
"contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB from playing a stronger role as an international and reserve currency"

What kind of wisdom is that? From what school?

Money is for trade, domestic and international. The usage of a currency should be directly in proportion to the products that the issuing country produces. A small room of deviation is normal but very limited. This fundamental point has nothing to do with account openness, so long as there is enough currency representing the product flowing in the market. Any openness more than that purpose is excessive. The over-representation of USD and Euro in trade is against the principle how currency should work and is imposed by factors outside of economy and trade.

The west "wisdom" is just a self indulging illusion of abnormally. Once again, western economists are not treating economy as a science.

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The conventional wisdom now is that if you hold on to RMB, there is a chance that you'll get screwed by the Chinese but if you hold on to the USD, said screwing is 100% guaranteed.

taxiya said:

This is shocking to me, or not since it is from FT.
"contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB from playing a stronger role as an international and reserve currency"

What kind of wisdom is that? From what school?

Money is for trade, domestic and international. The usage of a currency should be directly in proportion to the products that the issuing country produces. A small room of deviation is normal but very limited. This fundamental point has nothing to do with account openness, so long as there is enough currency representing the product flowing in the market. Any openness more than that purpose is excessive. The over-representation of USD and Euro in trade is against the principle how currency should work and is imposed by factors outside of economy and trade.

The west "wisdom" is just a self indulging illusion of abnormally. Once again, western economists are not treating economy as a science.

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Well I think it's fair to say that openness and liquidity helps a currency usage. After all, you are not always going to have balanced trade. Which means, you need to convert to get more of that currency or invest in that currency denominated assets. Russians are clearly making due with rmb right now so it is a case where rmb can be reserve currency for another large economy but rmb needs to be easier to use to attract more usage.

pbd456 said:

I think BoJ has bought over half of Japanese government bonds. There is no reason why FED can't keep on buying US Treasury for years to come.

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eh? Where do you think BoJ and FED get the money to by the bonds? If the money is printed out of thin air instead of representing real physical goods, how could that money mean anything more than toilet paper, in the same line how could the bond mean anything?

What BoJ and FED are doing are like "画饼充饥", "paint a pie and eat it". BoJ buying Japan's bond is in essence taxing the Japanese. Japanese government is not willing to increase tax to cover the spending due to the low GDP growth, instead they issue the bond to "borrow" money from BoJ who in turn use Japanese people's savings to buy the bond. The only difference from actually raising tax is the promise of returning the bond with a tiny tiny yield, while tax is not going to be returned. This sounds good to people. But it depends on the promise and wishing that one day Japan returns to growth. It is a dream and copium. In case (very likely) Japan remain staggered, they just kick the can down the road forever until even that tiny yield is killing them. By then, the banks just defunct on the savers who has no alternatives anyway. Does the Japanese know that? Anyone who can calculate knows, but they have no choice, it is either pay a higher tax today, or let the government "borrow" that same amount of money over and over again.

Does this work? It works if the yield is lower than GDP growth, so the size of the debt does not grow. It works if the lenders are willing to lend. In Japan's case, it probably will work for a very long time because the lenders are Japanese people who has no better choice.

It certainly does not work for US because large part of its debt are foreign. Foreigners can and will reduce and stop buying US bonds once they have better alternatives investing in a place with higher GDP growth and less money printing. China is increasingly filling the role of that alternative.

tphuang said:

Well I think it's fair to say that openness and liquidity helps a currency usage. After all, you are not always going to have balanced trade. Which means, you need to convert to get more of that currency or invest in that currency denominated assets. Russians are clearly making due with rmb right now so it is a case where rmb can be reserve currency for another large economy but rmb needs to be easier to use to attract more usage.

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Totally agree, that's why I said a small room for deviation is normal. The deviation is to cover to the imbalance of trade. What I objected is the kind of excessive "openness and liquidity" like USD whose offshore portion represents a large amount of goods in world trade that have nothing to do with US.

Serb said:

The dollar became the global currency because it had gold to back it up, but now they have nothing to back it up. Even the petrodollar system is ending.

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That is only part of the reason. The main reason actually was that after WW2 the US was the sole major economy still standing. They commanded the vast majority of the world's industrial output. So if you needed to buy American products you needed to have dollars.

Interesting concept: Asian Monetary Fund, China will invest 170 billion ringgit ($39 billion) in Malaysia, among the investors, 2 automakers including Geely.

Malaysia, China to Discuss ‘Asian Fund’ to Cut US Dollar Dependency​

• Malaysia PM Anwar revives proposal for Asian Monetary Fund
• President Xi Jinping welcomes further talks, says Anwar

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Michael90 said:

I'm not an expert in this domain. However, I do know that allowing the yuan to become a reserve currency would increase demand for the yuan in the global currency market, putting upward pressure on the value of the yuan while maintaining the current value would require more yuan would have to be printed, causing inflation in China. So, allowing the value to appreciate would eliminate China's trade advantage and makes its peoducts less competitive globally. Therefore, i think that's why China still maintains capital controls to keep demand for the yuan limited, or I'm I mistaken?
Plus, there's also the outsized role played by the United States in capital markets, trade and debt reinforces the status quo.
Else it's unreasonable that despite China's large economy and beings the world's top trader, its share of RMB in use for world trade/reserve currency is even below that of our currency the pound and even Japanese Yen.
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I think it's also because of the reason I mentioned above? To be honest, as long as this is the case, I don't see the Yuan ever being a significant challenge to the US Dollar. Unless the global economy undergoes a complete overhaul(which is unlikely anytime soon).

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Did you ever see China becoming the largest industrial power the world has ever seen 10 years ago?

Talks about BRICS currency and yuan internationalization: