Tag Archives: Currency

The Global Yuan: What It Means For Chinese Assets

China’s Monetary Policies Look To Favor Yuan, Gold At Dollar’s Expense: What Will This Mean For Art Collectors & Investors In “Portable China”?

Art Collectors and other holders of "Portable China" can benefit from the globalization of the yuan if they're in it for the medium- to long term

Art Collectors and other holders of "Portable China" can benefit from the globalization of the yuan if they're in it for the medium- to long term

Today, Business Intelligence looks into China’s monetary policies, and how they are increasingly favoring alternate investment vehicles like gold while putting a dent in the US dollar. For investors looking to diversify their holdings into a number of areas to lower risk and exposure to market fluctuations, what will the simultaneous increase in asset diversification, global economic jitters, the ascendance of China and internationalization of its currency have on those who put their money into Chinese assets? The article does a fairly good job of illustrating the long-term effects these market forces will have on these investors as well as China itself:

In a series of recent policy moves and announcements through official channels, or increasingly through indirect ‘economic ambassador’ addressing conferences or talking to western reporters, China’s intentions and ambitions are becoming clearer.

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Societe Generale China To Offer Yuan-Denominated Retail Services

Societe Generale — with offices in Beijing, Shanghai, Guangzhou, Tianjin And Wuhan — Looks To Expand Private Banking Services In Fast-Growing Market

Societe General is looking to grow its private banking services in China

Societe General is looking to grow its private banking services in China

The Wall Street Journal reports today that Societe Generale (China) Ltd., the locally incorporated unit of Societe Generale SA, has received permission from China’s banking regulator to offer yuan-denominated retail services in the country. This could have major implications on foreign investment in China, as it simultaneously boosts the growing global influence of the Chinese yuan:

Societe Generale (China) will begin to offer these services once its branches receive yuan retail licenses from local bank regulators in Beijing, Shanghai and Guangzhou, Pierre Bonzom, managing director and head of commercial and personal banking for the French bank’s China unit, said in a statement Tuesday.

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Bilateral Trade In Chinese RMB Coming To Hong Kong

China And Hong Kong Get Ready To Begin Bilateral Trade Scheme, Announced Last December. What Will It Mean For Holders Of Portable Chinese Assets Like Art?

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The internationalization of the RMB could be a huge plus for holders of portable Chinese assets in coming years. Photo © Reuters

The internationalization of the Chinese yuan has hit a major milestone, as China’s Central Bank Governor Zhou Xiaochuan, and Joseph Yam, chief executive of the Hong Kong Monetary Authority, today signed a memorandum in Hong Kong to set off bilateral trade that can be settled in Chinese yuan rather than Hong Kong or U.S. dollars. The move, which follows similar “currency swap” agreements signed by China and Argentina, Malaysia, and South Korea in recent months, illustrates the urgency with which China’s Central Bank is looking to globalize China’s currency. While none of this is really “new” to China-watchers, the importance of this story — and the story of China’s rapidly-internationalizing currency — is in what it means for investors who have “bought into” China. While it won’t mean much for holders of Chinese real estate or stocks, the real story here is in portable goods, an area which we have covered in detail several times before. With the globalization of the RMB comes a revaluation of portable goods (which can be carried across borders and converted into alternate currencies).

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The Implications of the Yuan Appreciation

The evolution of China leads to internationalization of the yuan

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Wang Guangyi: "Great Criticism Series" 1993 painting 200 x 200 cm

In December of last year, the Chinese economic publication Caijing introduced a new economic experiment conducted by the Chinese government in the Pearl River Delta — China’s go-to destination to test-drive new capitalistic ideas. To simplify foreign trade, the government began a pilot program to allow foreign trade exchanges to be conducted with the Chinese yuan rather than the previously-dictated dollar or Euro. This development, Caijing pointed out, is an early indicator of how the yuan is increasingly becoming a global currency:

The RMB took a step toward becoming an international currency…Currently, foreign traders denominate sales in foreign currencies, such as dollars and the Euro, and have to go through the State Administration of Foreign Exchange to change currency. This brings added risk from fluctuations in foreign exchange rates.

Since then, Caijing has posted a more thorough “roadmap for yuan internationalization,” written by Ye Xiang, a former official at the Hong Kong Monetary Authority. While Ye feels that the yuan could prove a stable international currency in the long run, he is more pragmatic about the time it would take for the currency to become more widely used or perceived as “the” global currency.

We must understand that it is an inevitable trend that the overseas yuan investment market will grow after foreign trade settlements in yuan become widely accepted…[W]e should let companies engaged in imports and exports adjust their yuan positions via banks to allow development of the overseas yuan monetary market. Gradually, a yuan investment market will take shape.

Is the yuan’s internationalization running parallel to China’s evolution as a global player? In other words, as China’s position in world affairs grows, will the same be said of its currency? If the yuan does indeed significantly appreciate against the dollar and China’s new Pearl River Delta experiment succeeds in making the yuan more of a global currency, will it magnify the global demand for Chinese assets such as consumer products, real estate, luxury goods, art, etc.?

Tough questions with no clear answer, particularly because the Chinese government’s exact intentions for the yuan remain so opaque. Also, it is hard to tell whether the government is in a hurry to see the yuan appreciate against the dollar during the current financial crisis, since China’s exposure to the dollar and US Treasuries is so high.

UPDATE 3/30: BusinessWeek throws in their two cents:

The yuan’s emergence as a major currency will take “certainly not years; it’s more likely to be decades,” said Simpfendorfer at Royal Bank of Scotland. He said it could depend on whether Chinese consumers step up spending in coming years, giving other countries a reason to use yuan the way free-spending Americans drove the dollar’s popularity.

UPDATE 4/1/09: The Financial Times weighs in on the subject:

Beijing has…been taking cautious steps to make its currency more internationally relevant. This week, [Zhou Xiaochuan, China’s central bank governor] signed a Rmb70bn ($10bn, €7.7bn, £7.1bn) currency swap deal with Argentina, designed to allow the Latin American nation to settle some trade bills in renminbi. It followed swaps with South Korea, Malaysia, Indonesia, Hong Kong and Belarus.

There is much substance to Mr Zhou’s proposals. Arthur Kroeber of Dragonomics, a research company in China, argues that Beijing is staking out a responsible position whereby it seeks a multilateral alternative monitored by a multilateral body. It does not want to challenge the dollar but is serving notice that, over time, the world should diversify from overdependence on one currency.