Homepage / Currency / The internationalisation of China’s currency has stalled
Disney is better off not meddling with Hulu, despite bigger ownership share Disney to buy 21st Century Fox assets for $52.4 billion in stock; Bob Iger to stay on through 2021 Bank of England unanimously votes to hold interest rates, shifting focus to inflation Bitcoin futures could be coming to Germany soon: Report Putin abandons United Russia party, will run as an independent in 2018 election HSBC's currency expert gives his best trades for 2018 Tax reform should not hurt US trade partners, says top EU official All you need to know about the top 5 cryptocurrencies South Africa's Sibanye-Stillwater to buy troubled platinum producer Lonmin IBM teams up with Samsung, JPMorgan to develop quantum computing Greece should only get a debt deal after its bailout is finished, new Eurogroup president says Europe markets set to open lower after Fed meeting; investors await ECB decision Germany’s in the middle of a deep political crisis, but it won't affect the euro Meet the new euro zone finance chief, who’s promising a fresh response for the embattled region Brexit will be a key challenge for 2018, says next euro zone finance chief South Korea's President Moon heads to China to mend ties. Beijing needs a few favors too Australia accused China of political interference, and Beijing isn't happy China just released a bunch of economic data that was in line with expectations China lifts market rates, following move by Fed China and India are fiercely competing to control an airport that basically nobody uses Chinese state press slams Western 'paranoia' for suspicions of infiltration Microsoft doesn't have a flashy assistant like Alexa, but its A.I. is trying to change how you work Cramer says Fox deal will give Disney the scale it desperately needs Just Capital's Dan Hesse: Companies that do good things have roughly 33 percent higher returns Asian markets to focus on Fed's third rate hike of the year; US dollar slides Cramer: Bull markets 'die on euphoria,' and we're one step away There's a one-bedroom condo for sale in Miami — and the seller will only accept bitcoin Apple co-founder, ‘father of the internet’ to FCC: ‘You don’t understand how the internet works’ Satya Nadella wishes Microsoft had got into the public cloud business sooner This elevator goes up, down and sideways, and could be the key to taller skyscrapers Apple has a $1 billion fund for US manufacturers, but it could invest more, said COO Jeff Williams Fed raises rates a quarter point, hikes growth outlook for economy You should update your iPhone now, as the new software fixes a pretty big bug Ivanka Trump’s brand repositions at home, soars in Asia 'Nobody has built a money-printing machine like Apple,' VC Jason Calacanis says These 90 private companies are reshaping the space industry, says Morgan Stanley Gundlach says if you bet against bitcoin today 'you'll make money' Uber's culture issues can be blamed on Silicon Valley's hunger for fast growth: Arianna Huffington Google, Facebook founders were naive about propaganda, extremist content, say Silicon Valley titans Gundlach: Tax plan could have some' unintended consequences,' hurt junk bond market Cramer: People will fight it, but Apple's investment in Finisar is a 'fantastic' deal Facebook found just three Russian-bought Brexit ads, amounting to less than $1 Overstock.com shares spike after blockchain unit announces for-profit property registry Dow stock Boeing is on track for best year in nearly 4 decades, but the charts point to trouble Another bitcoin rival leaps to a record high, surpassing litecoin's market value Martin Sorrell: Finalized Disney-Fox deal would be a top media investment for us What to expect in Yellen's swan song: 'She's not a showboater' Target to buy grocery delivery service Shipt for $550 million When politicians and executives get caught out Some of Facebook’s early friends now its sharpest critics US says hacker to plead guilty for role in 2016 cyber attacks Laser chip maker Finisar jumps 25% on news that Apple's investing $390 million in the company The Amazon Echo now lets you play Spotify across all of your Echos Citi has 5 reasons — including tax reform and global growth — why Apple can keep crushing market Facebook will start streaming WWE professional wrestling next month Deregulation, global stock rally to 'propel' Morgan Stanley higher in 2018: KBW analyst A new law bans Kaspersky software from use in the US government Bitcoin 'dwarfs' nearly all bubbles, including 1929 crash: Investor Ken Fisher How 2017 became a turning point for tech giants The biggest risk you face when choosing between a human and a robo-advisor Disney deal with Fox would be a ‘home run’ in its battle against Netflix, Amazon, analyst Ives says Stocks making the biggest moves premarket: HON, LLY, AMGN, TM, HD & more Apple's 'innovation complacency' could see it lag Google, Amazon in post-smartphone world, study says Cryptocurrency market now worth $500 billion, more than Warren Buffett's Berkshire Hathaway Tesla stock is up 12 percent in a week — but it could be time to pump the brakes Why Donald Trump's Jerusalem move might have made Russia a lot stronger Weekly mortgage applications fall 2.3% as rates rise Apple invests $390 million into Finisar, which makes laser chips for iPhone X and AirPods Leuthold's Doug Ramsey reveals top sector picks, bullish market predictions Tillerson says the US is ready to begin direct talks with North Korea German stock exchange operator Deutsche Boerse experiences trading disruption Russian court freezes $1.7 billion of Sistema assets at request of Rosneft A top Facebook exec is jumping on the bitcoin bandwagon ECB set to lift its growth outlook as massive bond-buying slowly winds down Swedish fintech start-up iZettle raises $47 million; CEO says 'time will tell' for IPO plans Google's top searches in 2017: Hurricanes, Matt Lauer and Tom Petty Google is blocked in China, but that's not stopping it from opening an AI center there UAE oil giant must build regional 'credibility' ahead of Saudi Aramco IPO next year European markets set to tread water ahead of Fed's decision Founder of a would-be tech powerhouse is blacklisted by China for allegedly disobeying court order Japanese start-up ispace just secured funds for first two lunar missions starting in 2019 China's GDP growth set to plunge to near 30-year low in 2018, ADB warns FBI agents called Trump an 'idiot' during presidential race South Korea may tax capital gains from cryptocurrency trading Japanese e-commerce firm to launch program for tech startups in Singapore I was wrong about bitcoin. Here's why Free money from China comes with strings — as one country's learning the hard way This power couple bought bitcoin in 2013, donated gains to cancer hospital Cramer Remix: What being young and broke taught me about the stock market Companies must have 'a culture of security' to prevent cyberattacks, McAfee CEO says Cramer's charts predict full speed ahead for industrial stocks like Caterpillar, Honeywell Asia markets take cues from a mixed US trading day ahead of Fed decision Cramer finds value-creating, investment-worthy CEOs across industries Novogratz says he would sell litecoin after its surge, sees bitcoin hitting $40k within a few months Here's why bitcoin prices are different on each exchange This start-up is making remote-controlled robots that can do surgery in space Apple’s up 43,000 percent since its IPO, and could soon surpass $1 trillion in market cap MongoDB falls despite earnings beat Why investors should beware stocks getting the bitcoin boost Billionaire investor Druckenmiller: ‘I love Amazon' more than Apple

Currency

The internationalisation of China’s currency has stalled

ON OCTOBER 18TH, President Xi Jinping will preside in Beijing over the most important political event in five years. At the Communist Party’s 19th congress much will be made of the triumphs achieved in nearly four decades of reform and opening up. So expect a glossing over of one part of that process where progress has largely stalled: the “internationalisation” of China’s currency, the yuan.

This seems odd. Just a year ago, the yuan became the fifth currency in the basket that forms the IMF’s Special Drawing Right (SDR). This marked, in the words of Zhou Xiaochuan, China’s central-bank governor, in a recent interview with Caijing, a financial magazine, “historic progress”. Symbolically, China’s monetary system had been awarded the IMF’s seal of approval. A further boost to prestige was the announcement in June this year that some Chinese shares would be included in two stockmarket benchmarks from MSCI.

  • In “Rest”, Charlotte Gainsbourg explores the sharp edges of grief

  • Taxing the rich

  • The rise of the podcast adaptation

  • Why malaria is spreading in Venezuela

  • Donald Trump’s latest travel ban faces fresh lawsuits

  • How “regularising” undocumented immigrants brings benefits

Yet the yuan’s international reach has in fact fallen in the past two years. It has regained its ranking as the world’s fifth most active for international payments, after slipping to sixth in 2016. But its share of this market has slipped from 2.8% in August 2015 to 1.9% now (see chart). Use of the yuan in global bond markets over this period has fallen by half, as companies have instead raised funds within China. In Hong Kong, the largest offshore market, yuan deposits have plunged by 47% from their peak in December 2014. Of the foreign-exchange reserves held by the world’s governments, just 1.1% are in yuan, compared with 64% for the dollar.

The constraints on the internationalisation of the currency are largely self-imposed—and in many cases predated admission to the SDR. A minor devaluation of the yuan in August 2015, intended to make the currency more flexible, was botched. This led to speculation about further falls in the yuan’s value, and forced the central bank to tighten capital controls and spend foreign-exchange reserves to prop it up.

Since January this year, China’s reserves have been growing again. But stringent capital controls remain in place. In his interview Mr Zhou called for a renewed drive to free up China’s financial system, citing a “troika” of targets: increased foreign trade and investment; a more market-based exchange rate; and a relaxation of capital controls. He said there was a “time window” for this. If missed, the cost of reform would be higher in the future.

Few observers, however, take Mr Zhou’s comments as official policy. In office since 2002, he is expected to be replaced next year. He represents one side of a continuing debate. In September two capital-control rules were indeed eased, but foreign traders tended to share the view of Mitul Kotecha of Barclays, that the move was purely cosmetic. In the words of Eswar Prasad, an economist at Cornell University and author of “Gaining Currency”, a book about the yuan, “what the government giveth, the government can taketh away.” Most foreign investors are all too aware of that.

So the currency’s international advance is unlikely to resume soon. More likely is a gradual opening of yuan markets. One avenue is to standardise systems such as the China International Payment System, which processes cross-border payments. Another is to expand the Bond Connect and Stock Connect programmes that link Chinese markets to Hong Kong. A third involves China’s intense diplomatic drive to push its “Belt and Road Initiative”, involving massive investments in infrastructure to boost transport, trade and investment links between China and Central Asia, Europe and Africa.

However, David Woo of Bank of America Merrill Lynch argues that none of this is likely to lead to a big surge in foreign holdings of Chinese financial assets. That will depend on the liberalising measures Mr Zhou is advocating, as indeed does the future shape of the Chinese economy. “There isn’t a single country,” Mr Zhou argued, “that can achieve an open economy with strict foreign-exchange controls.”

But his apparent belief that measures already taken, such as joining the SDR basket, have set the yuan on a remorseless path towards internationalisation has been contradicted by the experience of the past two years. The party’s watchword remains “stability”. And whatever the benefits of capital-account liberalisation, it would bring a measure of unpredictability. In a battle between openness and control, Mr Xi is likely to favour control.

Source: economist
The internationalisation of China’s currency has stalled

Comments are closed.