Do Yuan to Buy Some Renminbi?
- Why is it important for the Yuan to become a major world currency?
We have to look closer at the Chinese admissions to become the leading world economy in 2024 (Chan, 2016). China sees itself a bigger and more vibrant economy in the world that is ahead of the US economy. What we have observed with the US economy is the power and strength its currency has had a greater contribution to the US economical boost and its global power. Same arguments goes for China. If China wants to be a world leading economy, Yuan has to at least compete US Dollar, if it doesn’t bypass it.
The worldwide use and availability of Yuan would mean how important it is and how much international power has China gained. China should not keep Yuan as a currency that is only circulating in China and some more countries. Of course China has it worries about the worth of Yuan and its implications for Chinese economy but they have to open up. At the moment, China is hugely dependent on US dollar for its international business. If and when Yuan becomes a major world currency, China would have lesser dependence on the US dollar. More countries would find it easy to do business with China.
- What needs to take place for the Yuan to be listed right along with the U.S. dollar and the euro as global currencies?
Yuan can become an international currency along with US dollar and Euro but it is dependent on many factors. Yuan is the national currency of China and it is highly in control of the government who are the ones who set its international worth. In the recent years, there has been an outrage about China decreasing the exchange rate of Yuan. The international community wants China to increase its rate. A turmoil was seen in the US economy in 2008 which posed a greater opportunity for China to get the well-deserved worth for Yuan but in my opinion Chinese economy did not open up enough to gain power for Yuan over the US dollar. At present, US economy has again stabilized and has won the confidence of the investors once again (Bhardwaj, Gorton & Rouwenhorst, 2016). China could have stabilized the international financial system if it had created an environment where Yuan had been presented as a major currency where investors could have put their money in times of crisis.
China has to keep on becoming a strong economic power for Yuan to become a world leading currency. As I said earlier that Yuan is highly dependent on the decisions that the Chines government makes. Therefore, China has to progress at a higher rate economically than the rest of the world if Yuan has to become a world leading currency. China would need to adopt to a more sophisticated financial system than what it has now which is based on a controlled capitalist system.
The stability of the Yuan itself is necessary for it to be a world major currency. I mean who would want to deal in a currency that is not stable in the international exchange market. I believe that Chinese government needs to open Yuan to international market forces for it to be assessed more scientifically and valued accordingly. Yuan has to be included in the currency basket of other countries. China should remove all restrictions so that Chinese investors and international investors can invoice experts and imports in Yuan.
- Why is the Chinese government so hesitant to open up the Yuan to market forces to determine its value inside and outside of China?
The main concern of the Chinese government is losing the control over Yuan if it is opened to the market forces to determine its value inside and outside of China. In other words we can say that they are suffering from “Triffin Dilemma”. Any country suffering from Triffin Dilemma believe that they would face a trade-off if there currency is exposed to external forces and its real appreciation occurs (Gourinchas & Rey, 2016).
China also has its internal issues like inflations, labor rights and high interest rates. Chinese government worries that opening Yuan to market forces might expose these issues to the international world that could negatively impact the Chinese economy.
- What roles do foreign banks like HSBC and electronic platforms like Thomson Reuters and ICAP play in helping the Yuan move closer to becoming a global currency?
Foreign banks like HSBS and electronic platforms like Thomas Reuters and ICAP can help Yuan in becoming a global currency in many ways. First we have to look at the amount of transactions that facilitate international businesses with the help of these banks and financial institutions. Yuan, if in the good books of these financial institutions, can become available for international transactions and investors could be able to use it for their money transfers if it is as stable as other global currencies or better than them. HSBC and the electronic platforms for money transfer can help Yuan become in circulation outside China and provide it with an increased transparency and traffic that it needs to become a global currency.
- If you were to predict what the foreign exchange trading world will look like in 2014 when the Bank for International Settlements issues its next triennial survey in foreign exchange, what would you predict?
For the next triennial survey by the International Settlements, I would predict that the global foreign exchange would increase compared to present. Chinese Yuan as a currency would increase its turnover in the international market in my opinion. These predictions could well be in the favor of Chines Yuan in becoming a global currency provided its transparency and less control by the Chinese Government.