Yuan to be internationalized to replace USD?

[mDumb]

BEIJING: China is entering into a new and powerful form of relationship with Pakistan. It has decided to allow Pakistan to participate in cross-border trade using the Chinese Yuan as the base currency in dealing with the western Xinjiang Uyghur Autonomous Region. The central government in Beijing is also encouraging the provincial government of Xinjiang to become an international gateway for trade with Pakistan and Afghanistan that lie across its border.

This is clearly a precursor with a currency swap deal between the two countries running into several billion dollars. China has entered into swap deals with South Korea, Malaysia, Indonesia and Argentina to encourage the worldwide use of the Yuan. The deal involving Argentina last year was worth $10 billion. Pakistan, which receives a lot of financial assistance from China, would easily agree to a swap deal and help in internationalizing the Chinese currency.

Zhou Xiaochuan, governor of the People's Bank of China, has now announced that Xinjiang will be included in the special program for expanding the use of Yuan as a settlement currency instead of the US dollar. The central bank was also ready to assist small and medium sized companies as part of the new development package unveiled by the government for Xinjiang a few days back, he said.

The latest move is bound to expand trade and financial exchanges between Xinjiang and Pakistan. It coincides with a government decision to impose a new tax on the sale of crude oil and natural gas, which will help Xinjiang’s local government to mop up huge resources. The tax, which will range between 3% and 3.5% of the value of production, is expected to bring in huge amount of money for further development of the region dominated by a Muslim population.

China has been looking for ways to intensify the process of development in order to counter the influence of Islamic fundamentalism spilling over from bordering North West Frontier Province areas of Pakistan.

Xinjiang has earlier entered into a development agreement with NWFP of Pakistan while the Chinese Communist Party has inked a cooperation agreement with the fundamentalist Jamet-e-Islami. The purpose is to enhance China’s influence over the fundamentalists sections in Pakistan and keep the militants at bay instead of solely depending on the central government in Islamabad for this purpose. The government recently said it had announced the special financial package to achieve “leapfrog development and lasting stability in Xinjiang”.

Border trade has huge potential for China. Its trade with Mongolia through the land port of Erenhot topped $2.1 billion in 2009. Its border trade with Russia using the same port came to $551 million last year,

 

[Dr.Evil]

As of now - Not Possible

In future - Who Knows

 

[mDumb]

<As of now - Not Possible>
Primarily resistance from the West.

Big hurdles remain for the Chinese. Making the yuan freely convertible is one: Major central banks would be loath to hold any large sums of any currency—the purest definition of a reserve currency—if they could not sell or trade it without limitation. Another is the absence of a large market for yuan-denominated bonds. One key sign of acceptance as a reserve currency would be if Western countries such as the U.S. purchased bonds denominated in yuan and sold at market rates. Until now, yuan-denominated bonds have been sold only by Chinese banks, along with multilateral banks such as the Asian Development Bank and International Finance Corporation, and the bonds have been sold only in China.

Yet there was movement even on that aspect last week: HSBC Holdings (HSBC) and Bank of East Asia said they would become the first foreign banks to be authorized to sell yuan-denominated bonds in China.

Doubts remain that the Chinese can challenge the greenback. Former Brazilian Central Bank chief Gustavo Franco poured cold water on the notion that Brazil and China would fully abandon trading in dollars, calling it "pure idle talk." Others agree. "For now, the safe haven aspect of the dollar has overwhelmed other concerns. When people need liquidity, they go to the United States," says Morris Goldstein, an economist at the Peterson Institute for International Economics in Washington.

Still, what is more or less a consensus among Western experts on China seems to have formed that the Chinese are on an unmistakable path toward challenging the dollar. What remains lacking is a political decision to shift from acting on the margins to making a decisive move, many experts say.

That resolve may be forming. A Chinese official said on May 20 that the yuan could be a serious reserve currency by 2020. Zhang Guangping, vice-head of the Shanghai branch of the China Banking Regulatory Commission, told reporters that this date would coincide with the timetable of making Shanghai an international financial center like London and New York. Turning Shanghai into China's money capital would be meaningless if the yuan were not convertible.

 

[Cheetah786]

Actually Chinese economy is almost self sustainable means its lot less dependent on exports and more self dependent .Chinese will soon unpeg the yuan from dollar to let it float as it will bring the cost of imports down and release inflationary pressure of china also means billions more coming into Chinese economy its a brilliant move any way you look at it.To answer your question yes it is possible and it will become a reality.

where is the link for the original post i smell times of india ''Pakistan, which receives a lot of financial assistance from China'' care to shed a light on this please

 

[EjazR]

.... the Chinese Communist Party has inked a cooperation agreement with the fundamentalist Jamet-e-Islami. The purpose is to enhance China’s influence over the fundamentalists sections in Pakistan.........

Not a good sign, first the Americans utilized the "fundamentalists sections" against the soviets and now the Chinese are trying to cash in. Since when did JI start representing Pakistan? What happened to the GoP and the sovereignty of Pakistan?

Can very quickly turn into 1980s all over again.

 

[Treatment]

Well this is pure propoganda, china cant internationalize its Yaun without letting the yaun rise, what happens when the yaun rise ? the chinese money in american reserves will deflate so yeah i dont see that happening for next few years,

Say if i have to assume if china let the yaun rise how is it gonna support its export oriented economy ? iam sure there is bangaldesh to overtake china in cheap labour if that happens

 

[Cheetah786]

Not a good sign, first the Americans utilized the "fundamentalists sections" against the soviets and now the Chinese are trying to cash in. Since when did JI start representing Pakistan? What happened to the GoP and the sovereignty of Pakistan?

Can very quickly turn into 1980s all over again.

Oh i love this MR Dumb creates a Chinese foreign policy Ejaz is telling Pakistanis how bad Chinese are out there to destroy us.

 

[Tree-kingdoms]

Well this is pure propoganda, china cant internationalize its Yaun without letting the yaun rise, what happens when the yaun rise ? the chinese money in american reserves will deflate so yeah i dont see that happening for next few years,

Say if i have to assume if china let the yaun rise how is it gonna support its export oriented economy ? iam sure there is bangaldesh to overtake china in cheap labour if that happens

I do not know bangaldesh's labour price, but acturally india has already overtaken china in cheap labour price. India's average labour price is 1/3 of china's.

 

[below_freezing]

I do not know bangaldesh's labour price, but acturally india has already overtaken china in cheap labour price. India's average labour price is 1/3 of china's.

that is not true. most of india's population is making less than a dollar a day. if we eliminate the top 1% of superrich indians and politicians, our average income shoots up to at least 10x.

 

[Jade]

I do not know bangaldesh's labour price, but acturally india has already overtaken china in cheap labour price. India's average labour price is 1/3 of china's.

Good for us. Some of the investments that are to go to China are going to come to India

 

[deepak75]

Yuan being internationalized is long overdue, because that will have to make it float freely in international trade thereby removing the biggest dichotomy in modern day economics and putting an end to China's economic deciet and manipulation which over the years has already caused the East Asian economic crisis, the skewedness of international trade therby hurting developed and developing/underdeveloped economies alike and beyond all, high amount of inflationary pressure in Chinese economy itself not to mention the dangerous property bubble now pretty much ready to burst. But doing it at a moment wherein Chinese economy is totally reliant on exports is a huge risk.

 

[Tree-kingdoms]

Good for us. Some of the investments that are to go to China are going to come to India

Yes, that is ture. A few companies start considering to move their factories to india, but most of them still stay in china because india's poor infrastructure can not offer them good evn. Recently, indian government seems noticed that and start boosting their infrastructure construction.

 

[topjumper]

Yuan being internationalized is long overdue, because that will have to make it float freely in international trade thereby removing the biggest dichotomy in modern day economics and putting an end to China's economic deciet and manipulation which over the years has already caused the East Asian economic crisis, the skewedness of international trade therby hurting developed and developing/underdeveloped economies alike and beyond all, high amount of inflationary pressure in Chinese economy itself not to mention the dangerous property bubble now pretty much ready to burst. But doing it at a moment wherein Chinese economy is totally reliant on exports is a huge risk.

I agree with your last sentence and respectfully disagree with all the rest.

To understand the issue of Yuan you have to look deeper than some claims from some newspapers (or washington). China's social/economic development model is different from that of US, planned development is at the heart of the china's policies, free market activities are introduced to compliment the central planning, whereas the US you can argue is more like the other way round. Which model is better is open to debate and I have a feeling that the answer depends on which development stage one country is in given the our current world geopolitical / resources constraints. Either way the result itself is the best judge: China sets out its development plans in 5 year phases, if you view those 5 years plans as goals then the way China chose to achieve them are definitely fruitful.

Once you have a better understanding of how China chooses to run its economy you'll understand why China will not let its currency float freely in the foreseeable future, because by freely floating its currency it will have to surrender significantly on its fiscal controls, which undermines its current development model. The best you will see is Yuan trading in a range against a basket of currencies and you'll see that very soon depends on the state of the world economic recovery.

Finally to blame China on the imbalances of the world economy (or even the 97 Asian financial crisis) is, with all due respect, ridiculous and hypercritical. The cause of the 97 crisis in Asia is very similar to the 07/08 subprime crisis: gross mis-allocation of capital fuelled by cheap/irresponsible credit, first in emerging Asia then in USA. The US runs a trade deficit with 90 countries in the world, its average household consumed more than it earned, for years its interest rates were kept artificially low to encourage consumption (hence stimulate growth), China was merely the largest piece in this trade deficit picture, if you want to know what the imbalances of the world economies are, US itself is one right there.

China's rise as a manufacturing base for the world is a result of the global labour arbitrage, a combination of factors helped China on this -- relatively cheap and skilful labour, competitive work ethics, good infrastructure, predictable/stable government policies etc just to name a few. Cheap labour itself itself (due to labour abundance, or cheap yuan, or whatever) is not the only reason, there are plenty of cheap labours in Asia and Africa, many of them are willing to work much less than the Chinese, why is China winning the most??

And by the way, Yuan is not the only currency pegged to the dollar, it is pegged to the dollar again after washington decided to cut down as many trees as it can to print dollars. It has appreciated significantly against EUR and GBP, and the trade deficit is still there in Europe. To fix this problem the US and Europeans have to get its own house in order and not scapegoatting, it will only obstruct the solution to the root cause of our problems.

 

[mDumb]

<where is the link for the original post i smell times of india ''Pakistan, which receives a lot of financial assistance from China'' care to shed a light on this please>

You have a good sense of smell.

Here is the link:
China involves Pak in cross-border trade to internationalize Yuan - China - World - The Times of India