Free Renminbi Exchange Rate versus Dollar
http://www.theforexnittygritty.com/forex/free-renminbi-exchange-rate-versus-the-dollar
China is allowing banks to set a free Renminbi exchange rate versus the dollar in over the counter trading. This may well be a first step in freeing its currency from state control according to a Reuters article reported in the New York Times.
China has permitted banks to freely set their own exchange rates for the renminbi against the dollar in over-the-counter transactions – another step toward freeing the exchange rate from government control.
China has been moving slowly toward a free floating currency although slower than North American and European nations would have liked. Most recently banks were required to set Renminbi US dollar exchange rates within three percent of a government dictated exchange rate. The bottom line to a free Renminbi exchange rate versus the dollar is that China believes that its currency is now fairly priced versus the US dollar. As such a free Renminbi exchange rate versus the dollar or other major currencies will not result in a run on the dollar or a run on the Renminbi.
Renminbi Internationalization
It is a goal of the Chinese government to internationalize the Renminbi. According the Euromoney online the move to a free Renminbi exchange rate versus the dollar is meant to further the Renminbi’s internationalization. A common complaint of companies working in China is managing liquidity with what has been a government controlled currency.
In a survey conducted by Euromoney’s Research Group in association with ICBC on the Renminbi’s rise, close to 3,000 treasury and finance professionals of international companies with exposure to China responded and shared their views on renminbi liquidity management, cross-border trade settlement, inter-company invoicing and some of the main operational challenges corporate treasurers face in the country.
Additionally, China would like to have the clout that the US does in international affairs as seen in the ability of the United States and its Western allies to shut down trade with rogue nations via the international banking system. A free Renminbi exchange rate versus the dollar could be viewed with that aspect in mind as well.
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5. freeing its currency from state control
according to a Reuter’s article reported
in the New York Times.
6. China has permitted banks to freely set
their own exchange rates for the
renminbi against the dollar in over-the-
counter transactions - another step
toward freeing the exchange rate from
government control.
7. China has been moving slowly toward
a free floating currency although slower
than North American and European
nations would have liked.
8. Most recently banks were required to
set Renminbi US dollar exchange rates
within three percent of a government
dictated exchange rate.
9. The bottom line to a free Renminbi
exchange rate versus the dollar is that
China believes that its currency is now
fairly priced versus the US dollar.
10. As such a free Renminbi exchange rate
versus the dollar or other major
currencies will not result in a run on the
dollar or a run on the Renminbi.
12. It is a goal of the Chinese government
to internationalize the Renminbi.
13. According the Euromoney online the
move to a free Renminbi exchange rate
versus the dollar is meant to further the
Renminbi’s internationalization.
14.
15. A common complaint of companies
working in China is managing liquidity
with what has been a government
controlled currency.
16. In a survey conducted by Euromoney's
Research Group in association with
ICBC on the Renminbi's rise, close to
3,000 treasury and finance
professionals of international
companies with exposure to China
17. responded and shared their views on
renminbi liquidity management, cross-
border trade settlement, inter-company
invoicing and some of the main
operational challenges corporate
treasurers face in the country.
18. Additionally, China would like to have
the clout that the US does in
international affairs as seen in the
ability of the United States and its
Western allies to shut down trade with
rogue nations via the international
banking system.
19. A free Renminbi exchange rate versus
the dollar could be viewed with that
aspect in mind as well.
21. A seemingly eternal complaint of the
North Americans and Europeans is how
China manipulates its currency in order
to drive up the value of the US dollar
and Euro.
22. This practice has made Chinese
products more competitive and resulted
in the growth of the Chinese industrial
machine.
23. Now that there is a move to a free
Renminbi exchange rate versus the
dollar, one might be naïve enough to
think that currency manipulation is over
with.
Think again.
24. Central Banks are always free to buy
and sell currencies and even with a
free floating Renminbi the People’s
Bank of China can still buy dollars to
drive the price up and maintain a
competitive advantage in trade.
25. Meanwhile China is poised to pay for
Russian oil and natural gas in
Renminbi, trade Renminbi in London
and is setting up Renminbi clearing
bank in South Korea to facilitate a
bilateral trade deal and trade
denominated in Renminbi.
26. Chinese and South Korean leaders
have pledged to sign a bilateral trade
agreement by the end of this year and
introduce direct trading of their
currencies to spur cross-border
renminbi transactions and deepen
economic ties in two of Asia’s largest
economies.
27. So much for the USD as the only
currency to trade against the minor
currencies of the world!
