Renminbi (RMB)/Yuan Appreciation & Internationalization

tphuang said:

Eurozone collapses. EUR is always going to be a concept that fails. There has never been a successful monetary union without having a fiscal union. Since countries don't have control over their own monetary policy, you cannot devalue currencies during debt crisis and are at mercy of larger countries. See the sovereign debt crisis in Europe around 2012. I would argue EUR has never really recovered its importance since then. Keep in mind that at the onset of GFC, EUR/USD was trading consistently over 1.4. It reached a high of 1.58 in 2008 and now it is 1.08.

Note here where EUR/CNH is trading. It's not far from a historical low.

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Same with GBP/CNH, but that's collapasing for UK's own weakness

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JPY is another dying currency as you can see in this chart with CNH/JPY

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For reference
CNH - offshore RMB - for settlement mostly in HK - this is a delivery currency with your usual T+2 settlement so this is free floating
CNY - onshore RMB that foreigners don't have access to. - this is a non-deliverable currency that trades in China

There is normally some kind of small spread between the two. Yes, I have to deal with this, because I've worked with FX traders for many years.


bloc currency is not going to happen despite what multipolar people might want. There is a reason why SDR never happened as a real currency. China has CNH, why would it just HKD? HKD is pegged to USD. At this point, we already have a HKSE/mainland connect to allow people to invest in the mainland market and for mainlanders to invest in HK.

The first thing that should happen is have HKD pegged to CNH.

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Honestly when the RMB becomes internationalized, HKD should be abolished, pegging it to CNH is pretty pointless, same with the Macau dollar.
What is everyone's opinion on the currency in Taiwan after it reunifies? Assuming a likely armed reunification do you guys think Taiwan will just use RMB or another HKD-like arrangement?

coolgod said:

Honestly when the RMB becomes internationalized, HKD should be abolished, pegging it to CNH is pretty pointless, same with the Macau dollar.
What is everyone's opinion on the currency in Taiwan after it reunifies? Assuming a likely armed reunification do you guys think Taiwan will just use RMB or another HKD-like arrangement?

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Just RMB I guess, the only reason HK and Macau have different currencies is because they were formerly occupied territory that were released bloodlessly, on the condition of a mutually arranged integration process.

In contrast, Taiwan already achieved integration to China proper after the surrender of Japan. Guangdong or Shandong did not have their own currencies either, despite also being briefly the battleground between China and Japan.

I wonder if the BRICS currency is such a bad thing, then why would BRICS members even suggested and proposed it at all?

Is there anybody knowledgeable in the matter who can comment on what they expect the USD/RMB exchange rate to change to in the future and in what timespan?

From my own speculation, the RMB seems undervalued at the moment and is ripe for appreciation to at least 5.5-6.

Chinese supply chains are already so entrenched in all the major world economies and they don't really have viable alternatives in the short term, especially since the US seems reluctant to promote shifting supply chains to other cheaper nations like India.

An appreciation of 10-20% probably won't affect exports that much except really low cost goods in price sensitive markets and cheaper imports likely outweighs the cons.

sndef888 said:

Is there anybody knowledgeable in the matter who can comment on what they expect the USD/RMB exchange rate to change to in the future and in what timespan?

From my own speculation, the RMB seems undervalued at the moment and is ripe for appreciation to at least 5.5-6.

Chinese supply chains are already so entrenched in all the major world economies and they don't really have viable alternatives in the short term, especially since the US seems reluctant to promote shifting supply chains to other cheaper nations like India.

An appreciation of 10-20% probably won't affect exports that much except really low cost goods in price sensitive markets and cheaper imports likely outweighs the cons.

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nobody can answer that. If they can, they should be placing bets in the market. You would think USD is significantly overvalued right now, but that's the luxury given to being the world's reserve currency. Keep in mind that CNH has been going up in value against pretty much all the major currencies.

CNH/KRW

CNH/BRL - down a little in the past few years, but overall up a lot

CNH/INR

CNH/AUD - this one is more flat, but AUD is more dependent on resource prices

CNH/RUB - another flat one due to RUB being resources dependent

if you include EUR, GBP & JPY from earlier, those are China's major export competitors. Its competitiveness has increased despite currency appreciation against all of them.

Biscuits said:

Just RMB I guess, the only reason HK and Macau have different currencies is because they were formerly occupied territory that were released bloodlessly, on the condition of a mutually arranged integration process.

In contrast, Taiwan already achieved integration to China proper after the surrender of Japan. Guangdong or Shandong did not have their own currencies either, despite also being briefly the battleground between China and Japan.

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This is not a geopolitical thread and I would suggest you don't bring something like that in here.

Biscuits said:

There is no such thing as middle income trap anyways.

If it existed, why wasn't countries like for example, Germany, Japan, much of eastern Europe or those parts of China like every water adjacent province get affected by it?

Middle income trap is an expression used by hacks who can see a thing happening, but don't dare to delve into the root causes. The same type of economist that caused the 2008 crash because they believe economy is a religion where things just happen because it was ordained so by an invisible hand.

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Agreed, many Western analysts and economists treat this "middle-income trap" as if it is unexplainable natural phenomenon, lmao. As to why a lot of countries do indeed tend to get stuck in that GDP range is that for most medium/large countries the GDP per capita around $7-13k becomes the line where the growth generated by resource exports or labour-intensive industries starts to flatline and the latter can even start shrinking because of competition from "cheaper" countries. At the same time, the "trapped" country is unable to push into the advanced industries with higher levels of productivity and high revenue but such industries require highly qualified manpower, developed supply chains and logistics, accumulated know-how, and at least a few domestic champions that are able to compete on the global level. Like you said, oligarchic countries that get "trapped" tend to underinvest into education and "party away" all the money, which then leads to a dire situation where the traditional export items no longer bring enough growth while entering into the more advanced industries requires both time & money.

It is also true that the underlying issues are not bound to that GDP per capita range - smaller countries can go into high-income status purely on exports of natural resources but if they did not address the issues above, then they will also start flatlining there. Case in point, most of the Gulf states - the "diversification" they speak of is essentially them trying to finally address those issues.

China specifically worked on all those issues - qualified manpower (check), developed supply chains and advanced logistics (check), accumulated know-how (check), domestic companies that are competitive on the global level (check). Same for other countries that "escaped" - South Korea, Japan, etc. I would say that China has already passed its own "middle-income trap" range because due to massive population it would start flatlining earlier than the arbitrary range defined by WB.

xypher said:

Agreed, many Western analysts and economists treat this "middle-income trap" as if it is unexplainable natural phenomenon, lmao. As to why a lot of countries do indeed tend to get stuck in that GDP range is that for most medium/large countries the GDP per capita around $7-13k becomes the line where the growth generated by resource exports or labour-intensive industries starts to flatline and the latter can even start shrinking because of competition from "cheaper" countries. At the same time, the "trapped" country is unable to push into the advanced industries with higher levels of productivity and high revenue but such industries require highly qualified manpower, developed supply chains and logistics, accumulated know-how, and at least a few domestic champions that are able to compete on the global level. Like you said, oligarchic countries that get "trapped" tend to underinvest into education and "party away" all the money, which then leads to a dire situation where the traditional export items no longer bring enough growth while entering into the more advanced industries requires both time & money.

It is also true that the underlying issues are not bound to that GDP per capita range - smaller countries can go into high-income status purely on exports of natural resources but if they did not address the issues above, then they will also start flatlining there. Case in point, most of the Gulf states - the "diversification" they speak of is essentially them trying to finally address those issues.

China specifically worked on all those issues - qualified manpower (check), developed supply chains and advanced logistics (check), accumulated know-how (check), domestic companies that are competitive on the global level (check). Same for other countries that "escaped" - South Korea, Japan, etc. I would say that China has already passed its own "middle-income trap" range because due to massive population it would start flatlining earlier than the arbitrary range defined by WB.

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Education can only bring you so far because if the west is not willing to sell you the tools to breach through the middle income trap by developing new IP you can extract rent from investing in education is a waste for most nations..

We have seen it in the tech war the west started against China where China started breaching the middle Income Trap by designing as good or equal semi conductor design as the west.

So if they west hasn't blessed you with the high tech catalog to buy from, all your investment into education is there to generate brain power for the US. Not many countries can sustain as much brain drain as China has over the decades.

sndef888 said:

Is there anybody knowledgeable in the matter who can comment on what they expect the USD/RMB exchange rate to change to in the future and in what timespan?

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As China's economy and consumption grow, the long term trend of CNY should be appreciation. How fast the RMB will appreciate, however, is difficult to predict.

AndrewS said:

I've just laid out a summary of why the USD would lose reserve currency status in the event of a China-US war, irrespective of how such a war starts or ends.
Note this doesn't require or mean that the CNY will replace the USD as the global reserve currency




The entire thread is only 2 pages long, but there's quite a lot in the links and references from the articles.

sinodefenceforum.com/t/renminbi-rmb-yuan-appreciation-internationalization.9038/

It should make sense after that. You have the Singapore governments publicy saying

"“The US dollar is a hex on all of us,” George Yeo, former foreign minister of Singapore, said at the conference hosted by the ISEAS-Yusof Ishak Institute. “If you weaponize the international financial system, alternatives will grow to replace it” and the US dollar will lose its advantage. "

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Also, you have to look at Ray Dalio's work which quantifies the relationship between imperial decline and the loss of reserve currency status. The Youtube summary is below and there's also the longer book version which explains in more detail with all the numbers

youtube.com/watch?v=xguam0TKMw8

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AndrewS said:

Yes, the only thing that could cause the end of the USD as the global reserve currency in the next 5-10 years is a China-US war.

I would put the odds of this happening at 10-20%, so whilst it probably won't happen, the consequences are dire and is part of the reason why I'm here.

Patch has mentioned a 25-35% GDP decline estimate (presumably from RAND) which applies to both China and the USA. Such figures are comparable to the Great Depression, plus the effects would cause a economic depression globally that affects everyone.

And if Japan joined in such a war, the figures for Japan would be even worse given its position as a densely populated island with no natural resources which relies on seaborne shipping, and which is close to China.

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And if you agree with the long-term arguments, the question becomes how to navigate the inevitable decline of the US over the next decades




It's not just China's price controls on basic commodities.
China is so much more self sufficient because it is geographically the same size as the continental USA, so import prices just don't matter as much.
And when there are commodity price rises, it means more revenue redistribution within China, rather than currency outflows.

I'm not saying that Indonesia will succeed, I was saying that Indonesia's geography as an island archipelago isn't a critical roadblock to having an efficient logistics system, given the concentration and number of people on the island of Java. Plus thinking about it, Indonesia's geographical position on the equator means that there are literally no Typhoons, unlike in Japan.

I'm pretty negative on Brazil escaping the middle-income trap. Here's a few old posts going back to 2017 on why I think that:

sinodefenceforum.com/t/indian-military-news-reports-data-etc.5934/page-370#post-464569
sinodefenceforum.com/t/indian-economics-thread.8765/page-26#post-666715

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Look, if the precondition of "USD will lose reserve currency status" is a war between China and the US - this is really a pointless discussion. If anyone thinks China is winning when the precondition is WW3 I seriously suggest people consider what that really means practically.

"Want to eat hot pot? No fuel, no beef, no lamb."

How many of you are personally willing to live on a sustenance of Type 07 ration biscuits for a decade to see China 'win'?

FFS, it probably means that civilian internet is restricted - even if you were 'right' - it really doesn't matter.

You might as well buy guns and ammunition and canned food - because all semblance of normal economic activity will have ended and AR-15s and 5.56 ammo are worth their weight in gold- assuming nukes don't kill us all that is.

I'm interested in discussing how USD status degrades without a war - because that is actually practically useful.

abenomics12345 said:

Look, if the precondition of "USD will lose reserve currency status" is a war between China and the US - this is really a pointless discussion. If anyone thinks China is winning when the precondition is WW3 I seriously suggest people consider what that really means practically.

"Want to eat hot pot? No fuel, no beef, no lamb."

How many of you are personally willing to live on a sustenance of Type 07 ration biscuits for a decade to see China 'win'?

FFS, it probably means that civilian internet is restricted - even if you were 'right' - it really doesn't matter.

You might as well buy guns and ammunition and canned food - because all semblance of normal economic activity will have ended and AR-15s and 5.56 ammo are worth their weight in gold- assuming nukes don't kill us all that is.

I'm interested in discussing how USD status degrades without a war - because that is actually practically useful.

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Are you describing life in the West after WWIII?