China is pushing hard to increase the use of its currency the Yuan and make it a currency of settlement. It has cut deals with several countries in this regard. It has now made a deal with pakistan as well.
What will be the global implication of a powerful Yuan as per the ambition of the Chinese? What does it mean for other currencies and also india and also is it worth doing business with a currency which is manipulated?
China will not be able to internationalize the yuan in western nations, China's aim in internationalizing means to do trade only in the Yuan in Chinese terms, why would nations be interested if the they have their own currencies like the Dollar and Euro?? In no way will the Yuan ever replace the dollar like the Chinese are hoping.
the internationalization is a long term mission for CHina.
As long as one nation imports goods from China ,then the nation has the potential possiblity and need to accept Yuan as medium of payments,because it can save trade cost .
Of course, here are some precondition:
1. foreign Peoples are assured that they can buy any "made in CHina" they need with RMB freely ;
2.forgine people are assured that value of RMB is steady and hard.
Bhutan, Bangladesh and Nepal also accept rupee. Rupee is also accepted in some parts of UAE. Internationalisation means every country will accept it.And this is not going to happen unless China stops currency manipulation
1. the biggest barrier for RMB's internationalization is that RMB can not e exchanged freely now.
RMB can not exchanged freely now,which means that now CHinese center bank dosn't guarantee that RMB in the hands of foreign commons can be used to buy "made in CHina" freely.
2.whenever one guy want to buy "made in CHina' , buying "made in CHina" with RMB directly always cost less than buying "made in CHina" with USD or EUro indirectly.
so, the acceptance of RMB has nothing to do with the quality of Chines goods and brand. Instea,it has much to do with the demand of "made in China".
3. the more "made in CHina" other countries want to buy, the more the demand of RMB is.
4. CHina is already the biggest exporter and will be in forseeable future. so it is quite natural that RMB will be accepted as one of main hard cash, once China allow RMB to be exchanged freely.
RMB trade is just there so China could deal, misdeal, and exploit African countries. For Hong Kong and Taiwan, their economies are so greatly intertwined with the mainland that it doesn't matter what currency is used. For others, replacing USD or EUR with RMB to trade with China has its risks involved, you're basically paying your dealer with the currency he can manipulate with. This is also one of the reasons why the idea of Rupee-Ruble trade between India and Russia doesn't have too many takers, because both currencies are volatile. They would rather just use USD or EUR.
guy, all currencys are "manipulated" in fact, incluiding your beloved USD and Euros. the biggest manipulators are
US federal reserve bank and EU center bank. haha
people don't buy rubles much, just because People assure that Russian can provide nothing but oil and weapons.if some day, Russia can provide eveything from chip to ship. then the demand of rubel of course rise
The world is already suffering from the USD disorder. Why would the world move from USD to RMB when they are so intertwined together? Using an international currency by pegging it to gold would be the best, but that ain't happening anytime soon. Neither is RMB, unless China is willing to get rid of the USD debt which is 25% of its GDP.
Giving up RMB's pegging to the USD is not enough to internationalize it, considering your GDP holds 25% of USD debt. If China wants to internationalize RMB, it will have to sell off USD, which will mean massive exit of the US companies offshore manufacturing from China, which will in turn mean, massive job loss in China, which would mean civil war in China and a conservative estimate of loss of a decade's worth of growth.
Keep on daydreaming.
Last edited by AkhandBharat; 03-06-10 at 09:34 PM.