GENEVA, SWITZERLAND – China’s currency, the renminbi, moves significantly closer to being traded internationally with a new agreement between the Hong Kong Monetary Authority and the British Treasury, announced Monday. China and Britain agreed in September 2011 to extend trading in the currency, also called the yuan, by developing London as a trading hub. The new agreement will extend Hong Kong renminbi payments hours to make it easier to settle payments in London. It also sets up a private sector forum that “will work on tightening cooperation between Hong Kong and London, particularly on settlement systems, market liquidity and the development of renminbi financial products”, reports ABC News Australia.
British media note that the agreement gives credence to Chancellor of the Exchequer George Osborne’s argument that new, stiffer European Union regulations covering financial institutions will not harm The City’s position as a world centre.
Links to other sites: AP/Washington Post, BBC, Financial Times (free, registration required)
Li Dongrong, assistant governor of the People’s Bank of China, is reported by the Xinhua state news agency to have said at a forum Friday 14 January that the “central bank will work to expand trials of cross-border yuan settlement, to facilitate trade and investment. The central bank will promote the policy of allowing exporters to park their foreign revenue overseas.”
The announcement is the third move in a week by Chinese officials, who have been under pressure from other governments and in particular the US, to ease tight currency restrictions. Private and corporate investors will be able to move renminbi, the Chinese currency, to accounts in the US from four state banks as well as a small number of private banks, Beijing said 10 January. And Thursday the government said, reports Xinhua, that “qualified businesses and banks may settle their overseas direct investment in yuan, a move that expands the Chinese currency’s global reach and eases excess domestic liquidity concerns.”
The pressure on China has been stepped up in advance of Chinese President Hu Jintao’s visit to Washington, DC next week.
Links to other sites: Bloomberg, Financial Times background story
The Bank of China, one of four state-owned banks, has allowed limited trading in renminbi, China’s currency, in its New York and Los Angeles branches since the end of 2010. Trading in the yuan, as one unit of the currency is called, has only been possible in Hong Kong and will be limited to $3,000 per trade and a total of $20,000 per customer per year. Renminbi deposits in Hong Kong increased more than four-fold to rmb280 billion between the end of 2009 and November 2010.
The move is seen to reflect China’s worries about the reliance on the US dollar as the world’s reserve currency and will tend to strengthen the yuan, although trading limits will restrict movements initially.
World stock markets slumped Wednesday 23 June, after the initial boost they received from China’s announcement over the weekend that the renminbi exchange rate would become more flexible. Share prices fell on news from the US that sales of new homes were the lowest on record for one month in May 2010. Records used today have been kept since 1963.
US President Barack Obama has arrived in Beijing, China after visiting Shanghai where he met with students and called for greater Internet freedom for the Chinese. Obama said in a town-hall style meeting with students that he believes the free flow of information strengthens societies. Obama will try to calm Chinese fears about Washington’s response to the global economic crisis. China is the world’s biggest owner of US Treasury bonds. Chinese leaders have said they fear that the US will try to devalue its way out of the massive obligations it has assumed to save the banking industry and to stimulate a faltering economy.
The government’s head of banking regulation, Liu Mingkang, Monday 16 November criticized the US Federal Reserve’s loose monetary policy, saying it is having a “massive impact on global asset prices.” He said a weak dollar and low interest rates were endangering the economic recovery, especially in emerging econmies.
The US continues to call on China to revalue its currency, which it says is making Chinese exports cheaper and undermining other countries’ efforts to stimulate their economies. Economist, Financial Times, Reuters
The Financial Times offers a video forecast with charts for China’s renminbi, with its impact on oil and dollar prices.
