Renminbi as reserve currency; highest against US Dollar in 20 years
I wrote this article “Debutante Chinese Renminbi has a special date with year 2015“. In my opinion, the Chinese currency is moving towards reserve currency status. So while our attention was captured by politicking in the US over its debt and government shutdown, the Chinese currency Renminbi just moved one step closer to a reserve currency.
According to China Daily,
Record high exchange rate comes amid impasse over US debt
The yuan traded stronger than 6.10 per dollar for the first time in 20 years after the central bank raised its daily fixing rate to a near record high and the nation stepped up efforts to increase the Chinese currency’s global use.
The yuan strengthened for three consecutive days and closed at a record high of 6.0995 against the US dollar in Shanghai on Wednesday amid the ongoing impasse over US debt talks, China Foreign Exchange Trade System prices showed.
Using Chinese Renminbi for trade bypassing the US Dollar
Experts say that for a currency to become a reserve currency it must be used for trade as well as investment. The Chinese government is signing bilateral currency swap agreements with major trading partners to use Renminbi directly for trade. At the moment, China is the world’s second largest economy by nominal GDP yet its currency is only the ninth most traded according to the preliminary results of the 2013 BIS Survey (see page 5, paragraph 1).
Bilateral currency swap agreements between countries position the Renminbi for greater use. The latest agreement was signed with the European Central Bank on 09 October. From China Briefing,
On October 9, a bilateral currency swap agreement (BCSA) was signed between the People’s Bank of China (PBOC) and the European Central Bank (ECB). The agreement is valid for three years and could be extended based on further consensus. The swap line signifies a maximum size of RMB350 billion or 45 billion euros (about US$57 billion), which will be used in supporting trade and other exchanges between China and the European Union (EU).
Till date, 22 countries have concluded bilateral currency swap agreements with China.
What does this mean to the currency trader / investor?
For the short term currency trader, there is probably little change as focus remains on trading majors that have plenty of volatility. Traders who are really keen can explore trading the offshore Renminbi or CNH. Spot and futures for CNH are now available with some brokers.
For a currency investor who is looking for a generational long term investment however, the Renminbi as reserve currency theme is very exciting because it could be an opportunity similar to once-in-a-lifetime-events like Bretton Woods Conference and the launch of the Euro.
And finally to share some more on this from Twitterati.
Renminbi ascendance heats up global offshore center race http://t.co/6PpNGOfpkY
— Want China Times (@WantChinaTimes) October 19, 2013
China offers next step in removing dollar from reserve currency status http://t.co/gXRfGSe7V9
— VERNON BALMER JR. (@VERNIVERN) October 12, 2013
— Commence Partners (@CommencePartner) October 18, 2013
The Internationalisation of the Renminbi http://t.co/YzsPL3aZHc
— In Gold We Trust (@KoosJansen) October 14, 2013
— Gold is Ground Zero (@GoldNow) October 14, 2013
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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