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The Renminbi: Ready to Become the Next Global Currency?
Pinnacle Digest writes: The grumblings for a new, balanced world reserve currency are growing louder. China is not sitting on its hands, and more than ever taking an active role to ensure the renminbi is used more frequently in global trade. Ebeling relays a report by SWIFT that explains, a more efficient system should be put in place to facilitate the increasingly wide use of the Yuan in global transactions. SWIFT is a communication platform among international banks.
According to a report by the Society for Worldwide Interbank Financial Telecommunication, global use of the currency has surged. In August the Renminbi rose to 14th in the table of payment currencies, up from 35th in October 2010.
The People’s Bank of China estimates that overseas importers can save 2 to 3% on their invoice bills by paying in Yuan. The report went on to explain that “Currency appreciation or depreciation might be irrelevant”, in the rise in the yuan’s international use.
With US motivation to devalue its currency firmly in place, perhaps the US is willing to give China a bit more control if it will ultimately lower the value of the USD.
In regard to the Renminbi, the currency’s use has moved into a new stage, said Patrick de Courcy, head of markets, Asia-Pacific, for the organization. He explained that the path of the Yuan’s further internationalization will involve three phases: trade finance, investment and as a reserve currency.
The increasing use of the Yuan is not without challenges. Banks said that offshore Yuan clearing is appropriate, the report said, but in the long term, improvement is needed.
Mr. De Courcy commented that, “The existing arrangement for offshore Renminbi clearing has served the industry well, to date. In the medium to long term, however, it is important that we have an enhanced platform.”
The primary goal of a future Yuan clearing system should support the need for seamless routing of the Yuan within China and around the world. A typical payment in USD can be settled within seconds, while settling in Yuan takes much longer.
Ebeling explains more about the various clearing routes the Yuan can take and how probable the Yuan becoming the world reserve currency is.
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Re: The Renminbi: Ready to Become the Next Global ...
It seems a reasonable speculation that as China advances as a world power its currency likwise could eventually evolve as a replacement, or at least part of a basket of currencies, replacing the U.S. dollar as a preferred world currency. While i think it is a long way off given China's internal problems politically and socially the key factor is that they are still using a fractional reserve banking system and a fiat currency that has the same liabilities and flaws of the Western currencies, be it dollars or pounds etc. What might tip things in China's favour is if they keep encouraging their citizens to buy gold and silver and also accumulate it on a government basis as they have been doing, so they can eventually at least partially back their currency with precious metals. How this all plays out over the next few years will not only be interesting but will probably see the greatest redistribution of wealth in the history of the world.
thinker70