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.
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?
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
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.
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
Benefits of Internationalization of the Yuan Reduce exchange rates (for Chinese firms) Strengthen competitiveness of Chinese Financial Institutions Who would these benefit, and how?
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
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
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.