Homepage / Currency / The internationalisation of China’s currency has stalled
Bond market flashing warning sign even as stocks rally to new highs Mohawk Tribe sues Microsoft, Amazon for patent infringement Bitcoin plunges nearly 9% on fears of greater oversight from US regulators US 10-year yield flashes possible warning: Dallas Fed's Kaplan Chinese fintech company Qudian spikes more than 40 percent in IPO 'The housing market can't take the shock of a natural event,' real estate economist warns The Apple Watch is finally taking off, says analyst By selling now, investors risk missing an additional 'melt-up' in the market Amazon's next big bet is letting you communicate without a smartphone, says Alexa's chief scientist Cramer: IBM is not a Warren Buffett story anymore but about 'reignition of earnings' IBM sees biggest jump in 8 years after earnings beat Rising seas threaten nearly $1 trillion worth of US homes, says Zillow Germany's Hochtief confirms $20 billion bid for Spain's Abertis Amazon's $13.7 billion bet on online grocery ordering hasn't convinced shoppers to stay home The same federal lawmakers who regulate Amazon are wooing the company in the race for HQ2 OPEC reportedly favors 9-month extension to output cut deal in bid to boost oil prices Stephen Curry’s new shoe will spark an Under Armour turnaround: Analyst Apple and GE are writing software to help detect when jet engines could fail Merck shares jump after Citi upgrade on stronger cancer drug sales US investors should get some international exposure Elon Musk is 'fixated on Mars' but Bezos and I want space to better Earth, says Richard Branson Hurricanes Harvey and Irma drive housing starts down to a one-year low When the revolution eats itself Stocks making the biggest moves premarket: CVX, MGM, ANTM, IBM, CREE, AMZN & more Hillary Clinton says US threats of war with North Korea are 'dangerous' and 'short-sighted' Twitter’s new user rules crack down on nudity and 'unwanted sexual advances' The only thing scary about the Dow is that nothing seems to scare it Economist lays out a ‘concerning’ trend for Apple stock 1 billion users could be using 5G by 2023 with China set to dominate, study says The big question for US cities: Is Amazon’s HQ2 worth the price? Google and Goldman Sachs are two of the most active investors in blockchain firms Iraq calls on BP to 'quickly' develop disputed oilfields after seizing areas of Kirkuk Amazon, eBay accused of ‘profiting’ from tax fraud in UK JPMorgan buys fintech start-up WePay WhatsApp is blocked in China and VPNs are being hit as the Communist Party Congress begins Xi Jinping makes big promises for China's economic future Akzo Nobel issues profit warning after third-quarter earnings miss Boeing says Bombardier jets could still face hefty duties even if they are assembled in Alabama European shares expected to open on a positive note as earnings season picks up the pace InterContinental is bringing two new hotel brands to Asia India's troubled banks desperately need more money — but government help just isn't coming An upcoming fintech IPO is set to be 2017's largest Chinese listing in the US Amazon has brought benefits—and disruption—to Seattle Mobileye: Without safety standards self-driving cars risk being an 'expensive science experiment' Chinese President Xi Jinping touts successes of socialism at Communist Party Congress Former Tesla factory workers allege racial harassment in new lawsuit Crypto venture firm Blockchain Capital is raising $150 million for two funds Asia markets to keep an eye on China's Party Congress as dollar firms Cramer Remix: The big problem that triggered Netflix’s decline A.I. company CEO: Big data is not a visualization problem, it's a human scale problem Cramer pushes back against 'peak earnings' theory with 4 cheap stocks This family bet it all on bitcoin IBM set to report earnings after the bell Magic Leap gets another $502 million in funding for its mysterious product Here are 4 top software stock ideas from Cowen Alphabet says Sidewalk Labs unit will build a model urban district in Toronto Don't doubt Elon Musk, says astronaut who spent a year in space Traders bet on obscure e-commerce stock in speculation over bitcoin's blockchain technology Billionaire Mark Cuban on running for President in 2020: ‘If I was single, I would do it. For sure’ Facebook executive Regina Dugan leaves experimental hardware group after 18 months Tech's 'winner take all' system is making valuations spike, says NYU professor Market-beating value investor Bill Nygren on why he's bullish on Netflix, General Electric Biggest risk to Netflix is a $7-per-month Amazon streaming service, analyst Mark Mahaney says Not every Wall Street analyst is gaga over Netflix Rally continues, but 'this is kind of how bull markets end,' Bank of America strategist says Fund managers bet on rising interest rates but not on tax-cut boost for stocks A track record of success: The 5 stocks that have crushed it year after year Tesla employees detail how they were fired, claim dismissals were not performance-related Volvo unveils Polestar 1 electric sports coupe, its bid to take on Tesla Why Google is terrified about Alexa, and what it's doing in response ChargePoint hires Uber EMEA policy chief as its top Europe exec Analyst says ‘nobody can compete’ with Tesla in China Microsoft's big new Windows 10 update rolls out today, here's what's new Cramer: Analysts wonder whether Netflix's strong growth can last Mexico's tech industry is booming as Trump's anti-immigration stance pushes workers abroad Economic optimism drives stockmarket highs Homebuilder confidence jumps to 6-month high in October GM's Cruise will test self-driving cars in New York in 2018 Google just unveiled its first custom smartphone chip that helps you take better pictures Netflix's Reed Hastings joins Forbes list of rich Americans for the first time This former Soviet nation plans to launch its own cryptocurrency Google is rolling out advanced Gmail security for government officials and journalists Wall Street gushes over Netflix, says it has reached ‘escape velocity’ Google Maps is discontinuing a feature that converted walking directions to calories Google's new Pixel phones are kind of boring and you can get more for your money elsewhere Microsoft is rolling out a bunch of new PCs, including a laptop with a charge that lasts 17 hours Goldman: Bet against GE, dividend cut is coming Garmin’s Speak puts Alexa-powered navigation in your car Trump may open US wallet for debt-ridden NATO ally Greece at urgent time Stocks making the biggest moves premarket: UNH, MS, JNJ, HOG, CMA, NFLX & more Trump's fortune drops to $3.1 billion, ties Snap's Evan Spiegel on new Forbes 400 rich list Goldman sees US-Iran tensions presenting long-term threat to global oil supply Bitcoin is a 'speculative bubble' and unlikely to become a real currency, UBS says More airlines are offering free Wi-Fi for messaging services Bad news for the bulls: There are now more bulls Boeing versus Bombardier: Here’s what happens next Morgan Stanley shares jump to 9-year high after earnings beat the Street on strong wealth management Theme park owner sees its shares tank after warning that terrorism is hitting profits Snap teams with NBCUniversal in drive for TV shows on Snapchat Hillary Clinton says she will 'not run again' for president but will continue to call out Trump

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.