Can China internationalise the yuan? Yawn

See the latest Australian dollar analysis here:

Macro Afternoon

The more things change the more they remain the same, via Bloomie:

Faced with the prospect of restricted access to U.S. dollars, China’s answer is to get more people to use its own currency instead.

The increasing spillover of Sino-American tensions into the financial sphere has ignited a fresh push by China to promote the global use of the yuan. A growing number of government officials and influential market watchers have in recent weeks urged greater efforts on the endeavor, which gained renewed significance after China’s new Hong Kong security law triggered the threat of retaliation from Washington.

…“Yuan internationalization morphed from a desirable to an indispensable thing for Beijing,” said Ding Shuang, chief economist for greater China and north Asia at Standard Chartered Plc. “China needs to find a replacement for the dollar amid the political uncertainty, otherwise the nation will see financial risks.”

…To accelerate reaching a par with counterparts such as the yen or euro, China would need to pull down its capital controls, which were tightened in the wake of a messy devaluation in 2015. But that would raise the risk of destabilizing outflows. China could alternatively expand imports and run persistent current-account deficits — as the U.S. does — to generate a pool of yuan balances overseas. That, too, would require a hard-to-envision policy shift.

Exactly. China is doing everything in its power to go the other way. Interest rates are now effectively fixed. The yuan float is dirty at best. The capital account is closing ever more.

These periodic outbursts of CNY reserve currency hope are probably conversations encouraged by Beijing so it can keep getting access to dollars despite its policy settings which hugely discourage dollar inflows.

The fact is, China can’t liberalise its currency not just because it would crash, unleashing all kinds of economic hell at home and abroad, it would mean freedom for the Chinese to move about the world.

It stands in complete contradiction to everything that keeps the CCP in power.

Houses and Holes
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    • You sure can’t — the Yuan is a dud. Dog knows it could fall over entirely at any time. It certainly wouldn’t survive it was floated.

  1. It could be done quite easily with a new Chinese Central Bank liability and that seems to be what the Chinese (and more than a few Central Banks) are working on.

    They were due to announce a digital currency last year but they don’t even need to do that.

    There are likely to be more than a few that will be quite happy to settle export or import transactions by transfers within the Chinese Central Bank balance sheet.

    They could introduce a special class of liabilities that are fiat or even backed by some commodity (hush don’t say it).

    They might call them something other than Yuan.

    Once Central Banks start experimenting with new additions to their balance sheet liabilities the western private banks will get very twitchy as their control of public monetary systems comes under pressure.

    No time like the present to explore some fresh monetary ideas.

  2. We’re already half way to the Iron Ore Standard. Our secessionist, parasitic miners are keen.

  3. Yanks are keeping them going with QE…..why they are going after the HK peg, they can’t stop QE

    This is how they will roll….client states……empire building requires equity in the game eventually……the day of debt empires is waning quickly because blind Freddy can see that a lot of debt is going to money heaven.

  4. Over the long term it’s not that hard:
    For commodities China can approach large preferred suppliers and offer them attractive pricing for Yuan denominated sales.
    Hey FMG – we will buy iron ore with x% premium if you buy in Yuan, say 20% of your sales book. Longer term if you don’t we will remember this etc
    Repeat that with all large commodity markets.
    China has already done deals with BHP, Rio, FMG, Vale for Iron ore. There have been large deals done between China and Iran, African countries for oil.
    Over the longer term as oil demand peaks sellers will be desperately looking for sales and will insist on deals based on Yuan.
    As the pie of overall value of inter country trade flow shrinks the Yuan will have a larger and growing proportion of currency over time.

  5. Jumping jack flash

    I may be wrong, but as far as I know you can trade in any currency you like so long as both parties are happy, and the buyer holds the currency they’re performing the transaction in, and the seller is set up to accept it.

    Except for oil. OPEC oil is exclusively traded in US dollars. Therefore most countries already own a stash of them for when they need to buy oil, and are set up to trade in them, so it is simply easier to use their USD to buy something from another country than needing to remember to go out and buy some Yuan when you need to buy something from another country – who incidentally would also own a stack of USD.

    If that’s the case, then in my opinion China is pushing the proverbial up the hill to try and get everyone to hold Yuan to buy stuff with unless there’s a really good reason why, such as being much cheaper to the point of free to obtain, otherwise who would actually bother to buy Yuan when everyone, including China, already owns a perfectly good pile of USD?

  6. Jimmy Schofield

    This whole Chinese Yuan thing is farcical at best…so is the whole USA vs China “Cold War” once we get down to brass tacks the US can end the Chinese liberalisation experiment overnight. The US navy and military can choke off China’s maritime trade overnight. The US holds Chinas jugular in its little pinky finger……at any time the USA can make the yuan worth less than toilet paper…….do you really want to hold yuan?