Internationalization Of The Yuan Ki

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Internationalization of the Yuan …

Internationalization of the Yuan
Kimsuka Iyer
Econ 3960 Chinese Economy

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  • 1. Internationalization of the Yuan
  • 2. History of the ‘Yuan’
    The Renminbi is the
    official currency of the
    People’s Republic of China, and the Yuan the principle unit of it.
    The Renminbi was issued by the People’s Republic of China in 1949 by the People’s Bank of China.
  • 3.
  • 4. Dollarization and Internationalization of the Yuan
    US dollar has been
    the dominant currency. How has this affected the Yuan and its capacity to be an ‘international’ currency?
  • 5. What does ‘Internationalizing’ a currency actually mean?
    What factors would have to be in place for a currency to be ‘international’ ? - demand- unit of account- store of value
  • 6. History of Yuan/Dollar Exchange Rates
    Yuan has been pegged to the dollar since early 1960’s.
    Exchange rate first at a rate of 2.46 Yuan/Dollar
    July of 2005 – revolutionary change in Yuan as it was revalued by being fixed to a basket of currencies.
  • 7. Basket of Currencies
    Dominant Currencies:- U.S. Dollar- Japanese Yen- Euro- Korean Won
    Secondary Currencies:- Singapore Dollar- British Pound- Australian Dollar- Malaysian Ringgit- Thai Baht
  • 8. Renminbi – Exchange Rates
  • 9. Renminbi – Exchange Rates cntd.
  • 10. Benefits of Internationalization of the Yuan
    Reduce exchange rates (for Chinese firms)
    Strengthen competitiveness of Chinese Financial Institutions
    Who would these benefit, and how?
  • 11. Current Situation Regarding Yuan
    China is 2nd to the US as the world’s largest exporting nation – a result of which, the Yuan has developed into a major trading currency for surrounding Asian countries.
    Programs to settle trade deals with HK and Macao made
    Currency-swap agreements with Asian countries have been made
    These factors highlight the importance of the Yuan in regionalization
  • 12. What more does China have to do to be an International Currency?
    China would have to offer open transaction venues for foreign dealers
    China’s capital markets would have to develop further
    China’s openness is still restricted – this needs to change
    China’s high transaction costs need to be reduced
    And most importantly – free and full convertibility
  • 13. International Opinion on Internationalization of the Yuan
    The U.S. would prefer this event not occur, as they would be at the losing end
    To a layperson, travel and retail would be affected, with prices increasing for a large part of the world, and decreasing for China and certain Asian countries.