
China’s Plan to Make the Yuan the World’s Go-To Currency - chollida1
http://www.bloomberg.com/graphics/2016-chinese-yuan/
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akhatri_aus
I find it hard to personally use the CNY/RMB for anything. Money is a special
thing and all history is taken into account with risk. I can't realistically
imagine my money safe at any point over a hypothetical 50 year timespan,
especially considering the interventions in the HKD over the past year or with
the RMB/CNY in general.

Imagine asking yourself the same thing about the US Dollar, Yen, even the
Australian dollar, Pound over their entire timespan as a floated exchange
rate. They've never been any illusions about it, it's WYSIWYG. You can't
freely move CNY out of China to start with. Imagine having your savings, or
backing your business on such a currency.

I guess eventually it's possible, say after more than 3-5 decades of proof
that its a stable currency

~~~
seanmcdirmid
I was in this situation last year. After 8 years of working in China, I had
much of my savings in RMB in a bank. I was pretty lazy about moving it out
into investments, and since the RMB was appreciating, I didn't feel any
pressure to jump through the hoops to do forex.

However, after the initial deprecation last year, I saw the writing on the
wall, and got the money out. It wasn't easy, but it wasn't impossible either.
Chinese citizens can exchange $50K USD a year, which doesn't seem to be going
away, while foreigners can exchange what they earn in China...with proper tax
documentation (it took a few weeks to complete my initial forex).

Investment opportunities in China really suck! You have the bubbly real estate
market, the insider trader stock market, and foreigners are actually very
restricted from doing either of both anyways (we can't buy stocks, acquiring
property is tricky, not that I would want to do either). The only reason I
kept my money in China was because of the appreciation, investments also
weren't doing well at the time.

I can see the RMB being a serious currency..it isn't that messed up compared
to say the Venezuelan Bolivar, or many currencies in SE Asia or even the
Indian Rupee. Heck, the Japanese Yen is even more volatile, and I would have
lost big time if I made bets on the pound or the Australian dollar. But the
lack of convertibility, even if only partial, is a big show stopper. They
really should make more effort to that, and they seem to have stalled for the
last 10 years while walking backwards from the reforms of the early/mid 00's.

~~~
tormeh
Money isn't for investment - it's for trade. A currency's long-term value
isn't really important.

~~~
CyberDildonics
It was for the first few thousand years of documented history.

~~~
tormeh
I think that's more gold and silver.

------
runeks
I would argue: the only reason the US Dollar is the world's reserve currency
is because it was created like that at the Bretton Woods conference shortly
after the end of World War II. This was only accepted by the other allied
nations because US Dollar was declared convertible to gold, at $35 per troy
ounce. This, however, only remained the case for foreign central banks until
1971, when the promise was defaulted on. So the dollar, in its current form,
was born a gold certificate, that then transmuted into a currency. I doubt the
Yuan -- or any other currency at all -- can replicate this, and I think that
would be necessary.

I see no reason any central bank would want to swap out their Treasury bonds
with Chinese government bonds (Treasury bonds are already too illiquid in
times of crises, which is when we really need it), or any reason either
consumers or merchants would want to start using the Yuan, other than to pay
for imports from China.

~~~
akhatri_aus
It's also that the US doesn't play games with it's currency, there was alot
learned from the 1850s experiments with 'free banking'. Since the collapse of
Bretton Woods they've let the USD freely float without intervening or
controlling it in any way. There's hardly much in the club as such: the GBP,
JPY, CHF (broke all trust early last year, simply because they didn't do it on
a weekend), USD, EUR and CAD. Fun fact with CHF, they've had 2.2% inflation on
average since 1880, unrivalled, it's crazy they threw that stability away.

It's not as simple as just being in existence. There's alot of 'trust' to it
too, Countries could easily diversify against the USD on their reserve
baskets. The CNY isn't a significant proportion of any basket because of the
lack of trust & free liquidity with it.

~~~
John23832
The US kept the value of the dollar down in 2008 with QE. We manipulate too,
just more in the open.

~~~
akhatri_aus
QE is debatable, in a sense it's 'printed' loans that need to be returned,
there's no _direct_ influence on the exchange rate. If the US ends up having
inflation as a result, it'll be damaging and countries will need to find a way
to deal with it by switching their reserve currencies away somewhat. Russia is
doing this with gold, but who knows that could be political.

All in all, full employment matters more than currency perception overseas, at
least if its done using free market forces, such as the purchase of bonds in
the secondary market for QE.

~~~
gozur88
>QE is debatable, in a sense it's 'printed' loans that need to be returned,
there's no direct influence on the exchange rate.

People have this idea that with QE officially over the Fed's balance sheet
will shrink over time, but it's not true. Bonds that were purchased under QE
are replaced with new bonds as they mature, so it's effectively printed money.

This is just the kind of fiddling you don't want to see when you're holding
currency.

~~~
akhatri_aus
That's their process of rolling over. They've specifically will at one point
stop using the phrase in their monthly meetings, which means the bonds will be
left to mature - thereby destroying the money they created & shrinking the
balance sheet - the bonds get taken off, as does the reserve balance created
to buy them.

It's nothing new in fact its near bog standard. This process is done with the
lower maturity instruments when interest rates are higher by matching it up to
the federal funds rate by purchasing or selling them & rolling them over in
the exact same fashion (with this 'printed'/reserve money as well). It's just
this is done using longer term assets instead.

~~~
gozur88
>That's their process of rolling over. They've specifically will at one point
stop using the phrase in their monthly meetings, which means the bonds will be
left to mature...

That's the theory. I doubt it will ever actually happen, though, since whoever
makes that decision will be blamed for any poor economic performance that
follows.

~~~
akhatri_aus
This is why the Fed is apolitical. Their concern isn't with economic
performance it's simply with full employment and inflation most and foremost.
Even if it is at the cost of poor economic performance - infact that is the
goal, thereby reducing inflationary pressure.

~~~
gozur88
The Fed isn't anywhere near as apolitical as it pretends. Fed chairmen are
appointed by the president, after all, and approved by the Senate, just like
any other high level political appointee.

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raverbashing
First it needs to be fully convertible (meaning it can be bought and sold
everywhere). Interesting the article doesn't seem to mention it

~~~
athenot
Why is that not the case?

(I don't know enough about currency trade.)

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B4CKlash
The Yuan is a restricted currency. This can mean a number of different things
(depending on how a country wishes to restrict it's currency). In the case of
China it means that its' currency cannot be held outside of China. In London
it's perfectly reasonable for an individual company to have multiple bank
accounts with various currency. This is not possible with the Yuan.

~~~
dgemm
How is it even possible to enforce that?

~~~
seanmcdirmid
Companies generally follow the law on currencies. So a London bank won't take
yuan because the Chinese government says it can't. Your black market traders
will take it, but they might...screw you over since you can hardly call the
police on them.

~~~
DashRattlesnake
> Companies generally follow the law on currencies. So a London bank won't
> take yuan because the Chinese government says it can't.

I doubt it's that simple. Does that Chinese currency law have any force in the
UK?

I'm by no means knowledgeable about this, but I'd imagine it's more like any
bank that offers yuan accounts in the UK would necessarily need to be able to
do business in China to make the accounts useful, subjecting it to Chinese
law. Since the Chinese government forbids the latter, the former is loses its
appeal. So a London bank could take yuan if it had no Chinese presence, but it
wouldn't want to.

~~~
seanmcdirmid
No it doesn't, but a bank that took RMB would basically be cut off from most
sources that could consume RMB, like the Chinese government or Chinese
companies. So they would be stuck keeping pieces of paper in a vault
somewhere, hardly a nice situation to be in.

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ting_bu_dung
China's more likely to suffer hyperinflation first, than become the go to
currency.

1.) Yuan is being printed massively (it hit a credit-to-gdp ratio of 30 to 1
[http://www.bbc.com/news/business-37403363](http://www.bbc.com/news/business-37403363))

2.) it is a non-fully-convertible currency

3.) there are severe restrictions for yuan to move out of the country due to
capital controls. max $50/year. also, $15k/year withdraw restrictions
([http://money.cnn.com/2015/09/30/news/china-overseas-atm-
cash...](http://money.cnn.com/2015/09/30/news/china-overseas-atm-cash-
limits/))

4.) no one is required to use yuan for trade.

5.) nobody wants yuan outside China. people in China are desperate to exchange
yuan for other things inside China.

All the conditions are there for hyperinflation to occur. Might happen early
next year when europe and China both likely reject China's market economy
status, and starts imposing tariff on Chinese imports heavily.

~~~
ktRolster
_when europe and China both likely reject China 's market economy status,_

What does that mean?

~~~
adventured
More information on what's going on:

[http://www.reuters.com/article/us-china-usa-trade-
idUSKCN0ZU...](http://www.reuters.com/article/us-china-usa-trade-
idUSKCN0ZU1VU)

[http://thediplomat.com/2016/07/market-economy-status-for-
chi...](http://thediplomat.com/2016/07/market-economy-status-for-china-the-
views-from-brussels-and-beijing/)

The argument is essentially that China's economy doesn't function as a proper
market economy. That too much of its economy is directly governed by State
controlled or owned corporations. That prices in its economy don't function
enough based on market influences. An example of this would be their vast
dumping of steel and some other industrial products, while their government
continues to directly subsidize the dramatic over-production despite large
losses in the steel industry.

~~~
jorgecastillo
>The argument is essentially that China's economy doesn't function as a proper
market economy.

Which is true. I really hope this happens, it's time for China to start
playing by the rules of a real market economy or lose access to the global
market. We should not tolerate China subsidizing their industry, at the
expense of other industrial countries.

------
MichaelBurge
I'd rather store my retirement money in Bitcoin than in Chinese Yuan, and it's
a terrible idea to store your retirement money in Bitcoin.

Come to think of it, I believe the Chinese people have come to the same
conclusion?

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abysmallyideal
The RMB and Yuan seem like good longterm investments IMO despite the current
volatility in Chinese markets. The one thing however that is concerning is
China's abilities to counter US attempts to devalue and destabilize their
currency, much like what occurred to the Euro in the collapse of '08\. During
the time preceding, the Euro was a great contender, not so much anymore. Also
the collapse of the Yen spurned by American economic manipulation.

One noticeable difference to add is Japan and the EU are US military
dependents and therefore by logic also US economic dependents. The Chinese are
not. Not sure how that would value in calculations, but it is a significant
factor.

~~~
rrggrr
> The RMB and Yuan seem like good longterm investments IMO despite the current
> volatility in Chinese markets.

Debt to GDP is 282% and on a trajectory to hit 500% if action is not soon
taken. There is no long term upside if debt is not reduced.

> China's abilities to counter US attempts to devalue and destabilize their
> currency

China's exchange rate is set by China alone. If there is destabilization
taking place it is capital fleeing China in anticipation of a debt crash and
asset bubble implosion.

> the collapse of the Yen spurned by American economic manipulation.

The Yen is suffering from a demographic crisis where younger workers are far
outnumbered by an aging population. This is problem in a number of countries.

Hopefully you're being paid in USD to post this propaganda.

~~~
abysmallyideal
Sure, you can cherry pick your data all you want. If we look at their
infrastructure and military costs, they are within the ballpark to recover
gracefully.

As for currency manipulation, did you conveniently forget that the US bailed
out the banks to the tune of trillions with no jail times except for one lower
end employee? Their own economic manipulations and fraud created a bubble that
collapsed the Euro, strengthening the dollar.

Long term perspective is still quite good, and although you want to sputter
your freedom eagle bullshit at anything you think is non US, it remains an
attractive invest and forget investment option.

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danmaz74
How can those charts include the UK and not the Eurozone, which has a much
bigger economy?

~~~
mkj
I was wondering that. Random guess - people don't expect the euro currency to
exist in 2030?

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fredliu
Silly question: is the US dollar being the world's go-to currency part of the
US's national interests? If so, how big of an interest is that to the US? If
"yes", and "very" are the answers, I wonder if Yuan can ever replace US dollar
without a fight.

~~~
mevile
It's totally in the interests of the US to have people, governments and
companies to give the US cash in exchange for bonds instead of giving that
cash to other governments, like China.

~~~
hx87
Compared to giving the US cash in exchange for goods and services, though?
That's a much murkier comparison.

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chunhuoxidada
so all the world have to pay their estate bubble

~~~
asciihacker
can you elaborate on what real estate bubble you are talking about please?

~~~
John23832
China is building... and building and building. Houses mostly. It's basing its
growth on housing and industry like the US economy.

The problem with that is that a LOT of Chinese people cannot buy a house. They
simply don't have the liquid money or the same access to credit that
American's do (for better or for worse).

So what they have now is a glut of supply in their housing market (built upon
credit), with a lack of demand. And really there is no way for the Chinese
government to create that demand. They can't go the QE route because your
currency is restricted. You don't have diversified industry to kickstart.
Steel is down. And you're already saddled with both domestic and foreign debt.

I'm no economist, but the future isn't that bright for China. Imo a Chinese
collapse could be worst than an American one.

~~~
seanmcdirmid
I wouldn't use the word "collapse", but a "crash" is definitely in the cards.
The political system is too fragile to think that it can survive a crash, so
they are trying to kick the can down the road as far as possible, which will
just make the inevitable crash worse.

We will live in interesting times, for sure.

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phkahler
>> One of the basic definitions of a reserve currency is that it must be
freely traded. And the yuan is not quite there yet.

But doesn't the federal reserve consider the value of the dollar against other
currencies in its rate making decisions?

~~~
cheez
There's a difference between pegging the value at X and considering impact
when making somewhat-related decision Y

~~~
phkahler
>> There's a difference between pegging the value at X and considering impact
when making somewhat-related decision Y

Yes, there are different degrees of currency manipulation.

~~~
cheez
No disagreement.

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euroclydon
Interestingly the forecast expansion of sovereign Chinese bonds from 4% of
global total to 15% over the next 15 years, looks to come totally at the
expense of Japanese sovereign bonds, not those of the U.S.

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sickbeard
Not with their type of government they won't.

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up_and_up
All well and good, but why should the world trust China with that role?

