Saturday, 7 May 2016

Renminbi as International Currency Reserve

Prof Jacob Kurien of Johns Hopkins University's Nanjing Center lectured on the prospects of the Chinese Renminbi or yuan, as an international reserve currency at MIDS, Adyar, on April 26, 2016. Here are some of the salient points from his lecture.

Among the  top global Banks, the four largest are Chinese banks.

China has Bilateral currency swap agreements with 35 countries. 3.3 trillion Renminbi trade is on the basis of these.

Dimsum international and Panda domestic bonds issued in Renminbi.

China is the largest trading nation!! They have established clearing houses for RMB and Offshore RMB deposit accounts.

Twenty provinces are authorized to settle trade payments using RMB. Use of RMB for trade settlement and international payments. (SWIFT fifth position). International institutional investors have expanded their role.

RMB remains the only major currency which is not fully convertible! Interest rate caps removed on deposit and lending. But they have limits with "foreign guidance".

Expanded free trade zones to new regions.

Management basket of 13 currencies which have been revealed, formerly secretive.

Deposit insurance scheme for small savers.

Ramifications

Internationalization must be in three stages : liberalization, regionalization then globalization

The financial sector is fragile.(Gopu's comment: Really? This seems to be the popular perception in the financial media, but I'm skeptical. They have plenty of money to play around with. Aren't they the world's second largest economy? Is their situation remotely comparable to USA in 2008? Or Greece or Venezuela now? Or Russia in 1998? I doubt it. )

Growing debt and NPAs. (Gopu's comment: Is that a problem or a feature of every economy now? Isn't India worse? Aren't several USA state governments subject to deep fiscal problems, especially debt?)

Corporate debt is largest globally (115% of GDP)

Over capacity in manufacturing
High debt / GDP ratio (282%)
Decline in foreign reserves
Capital outflows and wealth effects
Volatile exchange rate and stock markets
Economic slowdown and middle income trap.  
6.5% growth is the new normal.
Move from export driven to consumption driven

Conclusions
Road to internationalization long and arduous.
Renminbi displacing US dollar in near future is farfetched.

Related Posts

  1. Deng Xiaoping and Japan
  2. What is News? - China's Cement Story
  3. Lady and Gentlemen
  4. Roadmap to Renminbi Internationalization


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