Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Remnimbi’

Trump’s Manipulation of Currency Manipulation

Posted by hkarner - 11. August 2019

Paola Subacchi

Paola Subacchi, Professor of International Economics at Queen Mary Global Policy Institute, Queen Mary University of London, is the author of The People’s Money: How China is Building a Global Currency.

By treating international trade as a zero-sum game in which the US makes its own rules, President Donald Trump’s administration has weakened the incentive for countries to engage in policy cooperation. Why should China bow to a US that treats it as an enemy?

LONDON – The weaponization of currency has rarely ended well for the United States. Look no further than the unilateral 1971 decision of President Richard Nixon’s administration to cancel the US dollar’s direct international convertibility to gold – a key element of the “Nixon Shock” that destabilized floating currencies and led to stagflation later in the decade. But that hasn’t stopped President Donald Trump’s administration from (mis)labeling China a currency manipulator.

The US has long accused China of keeping the renminbi artificially low, in order to secure an unfair advantage in international trade. But it has generally refrained from harsh action, and, until this latest decision, had not applied the “currency manipulator” label since 1994. Even during the mid-2000s, when the renminbi was widely considered to be significantly undervalued, US President George W. Bush’s administration chose not to make that designation, and instead pursued the bilateral Strategic Economic Dialogue on currency and other economic issues.But the renminbi’s recent drop below the psychologically significant threshold of CN¥7 to the dollar for the first time since 2008 was too much for the Trump administration to take. So, in a symbolic move that escalates America’s ongoing trade war with China, the US Treasury made the official designation.It is not at all clear, however, whether the label applies. A country is considered to be a currency manipulator if its monetary authority intervenes to engineer a devaluation, in order to boost the global competitiveness of its exports. The renminbi’s recent decline, however, was not the result of policy action.Nowadays, China maintains a managed floating exchange-rate regime: the renminbi’s value can fluctuate freely within a 2% band. But, because the authorities reset the exchange rate daily, a long period of weakness gradually moves the exchange rate downward, even if daily movements are marginal. That is what happened this week.In fact, far from intervening to devalue the renminbi, the People’s Bank of China (PBOC) has in recent years been its foreign-exchange reserves to prop it up. The difference this time is that it chose not to intervene, thereby allowing the currency to fall. Den Rest des Beitrags lesen »

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China’s Quiet Central Banking Revolution

Posted by hkarner - 11. März 2019

Miao Yanliang

Miao Yanliang is a member of China Finance 40, a Beijing think tank.

Since Yi Gang became governor in March 2018, the People’s Bank of China has improved its communications, boosted its transparency, and moved toward a flexible exchange rate. Although the PBOC has plenty of room for further improvement, its progress so far is good news for China and international policymakers alike.

BEIJING – Fifteen years ago, Alan Blinder, a former vice chair of the US Federal Reserve System and a longtime professor of economics at Princeton, wrote a book entitled The Quiet Revolution about changes in central banking. Chief among these was a move by some central banks toward open communication and transparency, and away from their long-held tradition of secrecy and surprise. A central bank “goes modern,” to borrow from the subtitle of Blinder’s book, when it starts talking.

The Fed was slowly heading in this direction by the turn of the century. It finally began announcing its interest-rate decisions in 1994, and started issuing regular press releases in 2000 (though it did not hold regular press conferences until 2011). These changes reflected a new appreciation among central bankers of how changes in short-term policy rates work their way through the economy via expectations and market pricing. Den Rest des Beitrags lesen »

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China’s Attempts to Supplant Dollar Face Historic Difficulties

Posted by hkarner - 27. März 2018

Date: 26-03-2018
Source: The Wall Street Journal

Capital controls and investors’ concerns over Chinese government policy mean the yuan remains a minnow in international finance

The world’s first yuan-denominated oil contracts launched Monday, as part of China’s drive to turn its currency into a global force in markets.

The history of international currency markets suggests that may be a difficult task, though not impossible if Beijing eases the capital controls that make it hard for foreigners to buy up domestic assets, economists say.

Those capital controls and investors’ concerns over the opaqueness of Chinese government and central bank policy mean that the yuan remains a minnow in international finance, despite China being the world’s largest exporter.

The dollar and euro are global currencies because central banks hold them in their reserves and they are used to buy services and goods both in and outside their home markets.

In launching new yuan-denominated crude-oil futures, Beijing hopes to create an oil benchmark to rival those in New York and London and challenge the dollar’s role as the dominant commodity-pricing currency by making it possible for crude exporters to sell oil in another currency. Den Rest des Beitrags lesen »

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Trump’s Imaginary Enemy

Posted by hkarner - 16. März 2017

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Trump’s Chinese Scapegoat

Posted by hkarner - 18. Dezember 2016

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China’s SDR Distraction

Posted by hkarner - 12. Oktober 2016

Photo of Barry Eichengreen

Barry Eichengreen

Barry Eichengreen is Professor of Economics at the University of California, Berkeley; Pitt Professor of American History and Institutions at the University of Cambridge; and a former senior policy adviser at the International Monetary Fund. His latest book is Hall of Mirrors:The Great Depression, the Great Recession, and the Uses – and Misuses – of History.

OCT 10, 2016, Project Syndicate

WASHINGTON, DC – At the start of October, China’s currency, the renminbi, was added to the basket of currencies that make up the International Monetary Fund’s Special Drawing Rights, or SDR. Previously, the SDR had been defined as a weighted average of the dollar, euro, British pound, and Japanese yen. Now that the renminbi has been added, it can claim to be one of just five truly global currencies.

Should we care? The Chinese certainly do. In Beijing, where I was late last month, joining the rarefied SDR club was all people wanted to talk about. (Okay, truth be told, they also wanted to talk about Donald Trump.)

Seeing the renminbi added to the SDR basket was a matter of national pride. It symbolized China’s emergence as a global power. And it vindicated the government’s efforts to encourage use of the renminbi in cross-border transactions, freeing China and the rest of the world from over-dependence on the dollar.

But the fact of the matter is that adding the renminbi to the SDR basket has little practical significance. The SDR is not a currency; it is just the unit in which the IMF reports its financial accounts. Only a small handful of international bonds are denominated in SDRs, because banks and firms do not find this option particularly attractive. The main issuer of SDR bonds is the IMF’s sister organization, the World Bank (the Fund itself is not authorized to issue bonds).

The only practical implication of adding the renminbi to the SDR basket is that it now becomes a currency that countries can draw, along with the SDR’s other four constituent currencies, when they borrow from the IMF. Only time will tell how many wish to do so.

The Chinese argue that the renminbi’s addition to the SDR basket should be seen in a broader context. It is one of a series of steps to encourage use of the renminbi in international transactions.

This agenda includes negotiating currency swap agreements, now more than two dozen, between the People’s Bank of China (PBOC) and foreign central banks. It also includes designating a Chinese financial institution to provide clearing and settlement services for transactions in renminbi in each leading financial center (in September, for example, the Bank of China was chosen as the official clearing bank for New York). And foreign entities are being authorized to issue renminbi-denominated bonds in China itself. Toward the end of August, Poland became the first European government to do so.

But the reality, again, is that these steps are more about symbolism than substance. The PBOC’s renminbi swaps are almost entirely unused. Designated clearing banks have not exactly been flooded with business. Offshore renminbi bank deposits are falling. The proportion of China’s merchandise trade settled in renminbi has been declining since mid-2015. And there is no sign that where the Polish government has so boldly ventured, other governments will soon follow.

The fault, to paraphrase Shakespeare, lies not in the stars but in China’s own financial markets. Since mid-2015, the country’s stock market has been on a rollercoaster. Every international organization worth its salt, from the IMF to the Bank for International Settlements, has been warning of problems in China’s corporate bond market. And if defaults on loans to corporations are widespread, as these organizations predict, the implications for the banks could be dire.

The problem is mistaken tactics by the Chinese government. The government and the PBOC believe that relaxing capital controls and allowing financial capital to flow more freely in and out of the country will force financial market participants to up their game. Companies will have to upgrade their accounting standards, and banks their risk-management practices, to cope with the faster pace of financial transactions. The result will be more liquid and stable financial markets, in turn making the renminbi more attractive as a unit of account, means of payment, and store of value for residents and foreigners alike.

Unfortunately, assuming a result doesn’t make it so. If Chinese banks and firms are slow to adjust, liberalizing international capital flows will lead only to more volatility, fewer offshore deposits, and less reliance on the renminbi for settling merchandise transactions – exactly as has been the case recently.

Chinese policymakers must now put the horse before the cart. The most important step they can take to foster renminbi internationalization is to strengthen domestic financial markets, modernize regulation, and streamline contract enforcement. If China wants to transform the renminbi into a first-class global currency, it should pay less attention to renminbi trading in New York and the currency’s weight in the SDR basket, and more to the development of deep, liquid, and stable financial markets at home.

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Europe’s Renminbi Romance

Posted by hkarner - 5. April 2016

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Nicola Casarini

Nicola Casarini is Research Head for Asia at the Istituto Affari Internazionali in Rome.

 

Photo of Miguel Otero-Iglesias

Miguel Otero-Iglesias

Miguel Otero-Iglesias is Senior Analyst for the International Political Economy at the Elcano Royal Institute in Madrid.

APR 4, 2016, Project Syndicate

ROME/MADRID – The Chinese are losing confidence in their currency. Faced with faltering economic growth, the People’s Bank of China has stepped up efforts to restore stability to the renminbi, using its vast foreign reserves to prop up its exchange rate and stem the flow of funds fleeing the country. The PBOC’s governor, Zhou Xiaochuan, has repeatedly stated that there is no basis for continued depreciation, but few in the country seem to be listening. In the last quarter of 2015 alone, the net capital outflow amounted to $367 billion.

And yet crumbling confidence within China has not prevented the West – and Europe in particular – from doubling down on the currency. When the International Monetary Fund announced in December that the renminbi would join the US dollar, the British pound, the euro, and the Japanese yen in the currency basket underlying its unit of account, the Special Drawing Rights basket, the decision was clearly political. Den Rest des Beitrags lesen »

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The Chinese Economy’s Great Wall

Posted by hkarner - 11. Januar 2016

Photo of Mohamed A. El-Erian

Mohamed A. El-Erian

Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO and co-Chief Investment Officer of PIMCO. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. He is the author of the forthcoming book The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

JAN 11, 2016

WASHINGTON, DC – The recent decline in China’s currency, the renminbi, which has fueled turmoil in Chinese stock markets and drove the government to suspend trading twice last week, highlights a major challenge facing the country: how to balance its domestic and international economic obligations. The approach the authorities take will have a major impact on the wellbeing of the global economy.

The 2008 global financial crisis, coupled with the disappointing recovery in the advanced economies that followed, injected a new urgency into China’s efforts to shift its growth model from one based on investment and external demand to one underpinned by domestic consumption. Navigating such a structural transition without causing a sharp decline in economic growth would be difficult for any country. The challenge is even greater for a country as large and complex as China, especially given today’s environment of sluggish global growth. Den Rest des Beitrags lesen »

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The Renminbi Goes Forth

Posted by hkarner - 11. Dezember 2015

Photo of Paola Subacchi

Paola Subacchi

Paola Subacchi is Research Director of International Economics at Chatham House and Professor of Economics at the University of Bologna.

DEC 11, 2015, Project Syndicate

LONDON – The Nobel laureate Robert Mundell once said, “great powers have great currencies.” China, whose government Mundell long advised, seemed to take this notion to heart, prodding the International Monetary Fund for years to add the renminbi to the basket of currencies that determine the value of the IMF’s reserve asset, the Special Drawing Right (SDR). And now the IMF has decided to do just that, in what amounts to a huge vote of confidence in China’s capacity to play a major role in international finance.

Many market participants, however, remain skeptical about the decision. Does the renminbi really belong in the same category as the US dollar, the euro, the Japanese yen, and the British pound in the international monetary system? Den Rest des Beitrags lesen »

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Crashing the SDR

Posted by hkarner - 20. November 2015

Photo of Benjamin J. Cohen

Benjamin J. Cohen

Benjamin J. Cohen is Professor of International Political Economy at the University of California, Santa Barbara, and is the author of Currency Power: Understanding Monetary Rivalry.

NOV 19, 2015, Project Syndicate

SANTA BARBARA – The Chinese government’s campaign to have its currency, the renminbi, included in the International Monetary Fund’s reserve asset appears to be on the brink of success. Last week, IMF staff formally recommended adding the renminbi to the basket of currencies that determines the value of its so-called Special Drawing Rights (SDRs).

The addition of the renminbi to the basket, which currently includes the US dollar, the euro, the British pound, and the Japanese yen, would provide China with a boost to its prestige. More important, it would advance the government’s efforts to internationalize the renminbi. But it would also be a mistake. The decision to recommend the renminbi’s inclusion, far from having been made on sound economic grounds, can only be understood as political. As such, the long-term consequences are likely to be regrettable. Den Rest des Beitrags lesen »

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