(CHINA'S) Renminbi use surges in home of US dollar

It is the monetary equivalent of what Chairman Mao called “bombarding the headquarters”. China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market.

The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm.

blogs.ft.com...
The article continues on to say importers can cut the cost of imports from China by agreeing to trade in renminbi rather than US dollar. Capitalism at it's worse. As long as they get the deal anyone else or even the country can starve and play second fiddle. This is actually disturbing to me on many levels.

a reply to: 727Sky

Time to face facts,it`s the beginning of the end for the almighty Dollar.

a reply to: 727Sky

Libertarians should be pleased.

The markets are winning, winner take all.
-skynet

a reply to: InverseLookingGlass

I think libertarians will be pleased...until they learn the full scope of what these changes will do. It's damn hard to be an idealist when insuring there is food to eat each night becomes the overriding priority in life.

Hopefully our slide stops before going that far, but I do think some are rooting for this....and do so in total ignorance of how bad this could get for us normal folk trying to live each day through.

a reply to: Sunwolf

The beginning of the end was 1971. Maybe this is the top of the 7th inning.

More USDs are held abroad than in the US. Probably a lot more than the FRB estimates, since they routinely underestimate inflation.
source

USD represents an increment of debt that you personally extend to the US Federal reserve bank. If you don't want the federal reserve bank as a counter-party, own hard assets.

originally posted by: Wrabbit2000
a reply to: InverseLookingGlass

I think libertarians will be pleased...until they learn the full scope of what these changes will do. It's damn hard to be an idealist when insuring there is food to eat each night becomes the overriding priority in life.

Hopefully our slide stops before going that far, but I do think some are rooting for this....and do so in total ignorance of how bad this could get for us normal folk trying to live each day through.

There will be certainly be suffering when those dollars come home to roost. $10/gallon gas is going to hit those monster trucks hard.

a reply to: InverseLookingGlass

You know? It's not $10/Gas I worry most about. Ma and Pa Kettle can skip their road trips and people can carpool. Ordinary folks have ways to deflect all that or at least, offset it. Misery through gas prices since 2001 have taught us well, after all.

When diesel is $10/Gallon, the game is over and say goodbye until the economy crashes out and we can start over somehow. If it's made by man, it's delivered by a truck and trucking doesn't eat costs any more than the companies who eat the surcharges. It's a direct flow to shelf price with a month or two lag in the impact, as I recall.

Let the bad games begin in the economies..I suppose. (sigh)

a reply to: Wrabbit2000

I'm not disagreeing with you.

My point would have been clearer had I referenced the "alpha asset cross" crude oil ($).

In addition to fuel, lots of everyday things are petroleum based. People should think twice about throwing away plastic items.

a reply to: InverseLookingGlass

Indeed.. I was adding to you point as well, not disagreeing with it.

a reply to: 727Sky

This has been in the works since china joined the WTO. China was required to allow their currency to "float" on the international market where as prior their currency (non local) was pegged to the US dollar as 1-1.

Discussions are ongoing in a lot of countries to set up an exchange system using local currencies, as almost all countries do for foreign trade / finance.

Currently the FED in San Francisco is working to become the West Coast hub for Chinas international currency.

SF seeks to be hub for Chinese currency

For all its charms and concentrated wealth, San Francisco is not known as a world financial center like New York, Hong Kong or London.

That may change if it succeeds in a drive to become the West Coast hub for business transactions conducted in Chinese currency.

I'm told the city is working on a proposal to become a center for offshore trading in Chinese yuan, allowing the currency to be used more widely beyond China's borders.

Mayor Ed Lee's office could not be reached for comment before press time Friday, but city officials are said to have lined up a "who's who in the San Francisco financial industry" to assist in the proposal.

Should the idea bear fruit, San Francisco would join Hong Kong, London and Singapore as places where offshore trading in yuan (a.k.a. renminbi or RMB) is growing, as China slowly moves to open up its financial system.

"It makes sense for an offshore center to be in a place like the San Francisco area that does a lot of trade-related business with China," said UC Berkeley economist Barry Eichengreen, author of "Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System."

It also makes sense for the Chinese government, which would like to lessen the influence of U.S. dollars, the primary mechanism of international trade, and increase the influence of the yuan. At the same time, Chinese and U.S. companies doing business with one another can save costs incurred by going through the process of currency exchange and conversion, and will have more "redbacks" on hand to invest in China.

"It can be a win-win," Eichengreen said.

Local banks authorized to process accounts receivable in Chinese currency are an essential go-between for offshore trading. Wells Fargo, which began accepting deposits and providing loans in yuan at its Shanghai branch late last year, would seem to be a good candidate.

Other banks mentioned in connection with the initiative include Silicon Valley Bank, which entered into a joint venture with Shanghai Pudong Development Bank last year; EastWest Bank, a Chinese American bank in Los Angeles with branches throughout California and China; and Bank of Communications, China's fifth-largest bank, which opened its West Coast flagship in San Francisco in 2011.

If the city were to become an offshore hub, it probably won't happen anytime soon. Some people close to City Hall have quietly pursued the idea for more than a year, and it has a number of hoops to jump through, including go-aheads from the U.S. Federal Reserve and the Chinese government.

Click link for remainder of article.


One of the sticking points for it to become an international currency / reserve is -

"In the end, (the yuan) cannot be a principal international currency as long as it maintains capital controls and additional limits on internal interest rates," said McKinnon, author, most recently, of the "The Unloved Dollar Standard: From Bretton Woods to the Rise of China."

The manipulation of Chinese currency by the Chinese government has been an ongoing issue for a long time. Chinas position was to control the currency by arguing failure to do so could result in a mass problem for the currency internally.

The counter argument was manipulation of the currency created unfair trade advantages in China's favor.

I think some people are a bit confused as to what a reserve currency is and how it works.

Wiki - Reserve Currency

A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions. Persons who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than persons in other nations because they need not exchange their currency to do so. According to economists such as Valéry Giscard d'Estaing, a former French Minister of Finance and president, a reserve currency gets certain benefits called the exorbitant privilege.[1]

As of 2014 the United States dollar is the world's reserve currency, and the world's need for dollars has allowed the United States government as well as Americans to borrow at lower costs, granting them an advantage in excess of $100 billion per year.[2] However, by increasing the value of the dollar, its status as a reserve currency hurts U.S. exporters.[3][4]

Various political leaders from Russia and China have called the world to move towards a super-sovereign reserve currency.[5][6] Similar discussions have been had in Europe by the Board for Global Financial Stability.

Current Reserve Currencies in Use

* - US Dollar
* - Euro
* - Pound Sterling (This is the setup China has - IE local and international currency)
* - Japanese Yen
* - Canadian Dollar

The issue some countries have is pinning everything to the US dollar causes issues when the Us dollar has issues.

Currently Russia and China are pushing for a new reserve and of course are floating their own as an idea. Russia has suggested a new type of currency system and the UN is looking at a single global reserve currency based on multiple nations.

I am not really sure why people try to spin this as doom and gloom.

I think you are reading more into this than there really is.

The article continues on to say importers can cut the cost of imports from China by agreeing to trade in renminbi rather than US dollar.

It's about costs. Todays costs. Next month who knows.
If they could save another 1K by using the drachma they would use it instead.

Sometimes we are caught off guard.. It is like being away from a child for a year and when you finally see them again golly gee they have grown and changed.

I was out of the states for a short while and when I returned I honestly experienced sticker shock at the grocery stores and gas pumps.

I certainly am not an international financer or even a 4X trader anymore.. All I know as an end user is that with mandated medical insurance along with the price of everything else... unless this trend is stopped IMO for many Americans the future is several shades darker for many many people.