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Exaggerating the Rise of the Yuan

Marc To Market's picture


The internationalization of the Chinese yuan has been a major story this year.   We have been suspicious that much of what passes for the internationalization yuan has been the "Sino-ificiation of Hong Kong and symbolic measures like numerous swap lines, none of which have been used.

That Chinese trade with its special administrative region Hong Kong should be conducted in yuan should hardly been seen as internationalization of the currency or the increase in the importance of the yuan globally.    It is a stretch to even consider trade between Hong Kong and the mainland as international trade any more than trade between New York and Texas would be.

The numerous swap lines are more interesting, but these are largely for show.  The lack of use reflects the lack of need.  Admittedly the swap lines may be more important for those centers, like London, Singapore, Zurich and the like that want to be offshore centers for RMB activity. 

Earlier today, the Sate Administration of Foreign Exchange (SAFE) indicated that Chinese companies had falsified $2.5 bln of foreign exchange transactions in the first eleven months of the year.  It reports that 112 companies were involved, of which 41 are facing administrative actions and 12 are believed to have broken the law. 

Even this may be the tip of the proverbial iceberg.  The fact that SWIFT reported that the yuan had moved into second place behind the dollar in trade finance captured imaginations, with many once again trumpeting the demise of the dollar.  Yet, as it turns out, this too may have been inflated.  It appears that trade finance (e.g. letters of credit)  that saw an increase in yuan use may reflect efforts to  disguise capital flows as trade flows.  Letters of credit is one way to access the relatively high interest rates in China.

The overwhelming majority of yuan trade finance was with Hong Kong (again), Singapore and Chinese companies.  According to SWIFT, the yuan had surpassed the euro in trade finance in January 2013 and again in March 2013, and then fell back into third place as the government crack down on fake trade invoicing.  Actual trade settlement in yuan has failed to keep up with its use in trade finance.  It accounts for less than 1% of the global total, a lower share than Thai baht and Swedish krona. 

The Commerce Ministry announced today it was removing some controls on yuan investment.  It appears that approval that for up to CNY300 mln investment is no longer required.  Rules that were previously announced for financial guarantees, financial leasing, small loan and auction industries appear to have been lifted.  Restrictions on investment in cement, steel, shipbuilding and electrolytic aluminum appear  to also have been lifted.  At the same time, officials reiterated that foreign companies cannot use cross-border yuan (CNH) to invest in Chinese securities, derivatives or used for trust lending.


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Tue, 12/17/2013 - 05:49 | Link to Comment Apostate2
Apostate2's picture

At last a realistic estimate of the yuan. 

Tue, 12/17/2013 - 05:48 | Link to Comment Global Observer
Global Observer's picture

The only way any country can accumulate RMB is if it runs a trade surplus with China. There are very few countries that do that. However, by extending RMB credit, China is denominating its export surplus in RMB instead of foreign currencies reducing the risk of devaluation of their savings. If they are doing this, they must be expecting some change in the international payment system and a significant devaluation of the currently popular international payment instruments against the new currency whatever it may be. No, I don't think they are either expecting or pushing for international trade in RMB. They are only trying to protect their savings by denominating their surplus in RMB.

Tue, 12/17/2013 - 04:56 | Link to Comment supermaxedout
supermaxedout's picture

The size of the present Yuan transaction volume is not the important thing. The decisive point is the following:

By establishing a separate system segregated from the UD Dollar China has removed a mayor blackmailing tool out of the hands of the US empire.

Remember how the world was shocked in 2008 when the fear was great that the world economies would all collapse at the same time caused by the staged Lehman event. At that time only the US had the fate of the world economy in its hands and it used this power to avoid the collapse of the Dollar system and to prolong its dominance over the rest of the world.

This is now a thing of tha past. The moment the US Dollar system crashes within a matter of days the world can switch to the Chinese Yuan gold backed system so that international trade does not stop. Im speaking of international trade not the corrupt US dominated financial world system. This financial system is then simply imploding or exploding whatever.

So in short the Yuan system is the back-up system for intl. trade and commerce. And this is it what matters most for China and most other countries except US/UK which both are nearly exclusively dependent on the their self constructed rotten banking and economical blackmailing system.

The only wildcard is the military situation. Only a military victory could change the balance in favor of the US. This is also not in sight. Its a patt as it was the case since the superpowers have a nuclear option. 

So its whether we all go up in smoke or the US financial system is going down to bring it to the point.

Tue, 12/17/2013 - 02:24 | Link to Comment Amagnonx
Amagnonx's picture

Nice to see a post that runs slightly contrarian to the ZH themes.  I would however make the comment that the article makes a lot of assertions, and it would add a lot of credibility if links to sources of information were included.


So, add some linked source please - we like to know who is claiming what around here, because the bullshit is being applied liberally everywhere, its nice to be able to point to the released info when the lies simply dont add up.

Mon, 12/16/2013 - 17:02 | Link to Comment rocker
rocker's picture

This is simply what's wrong with all markets right now. The HFTs, Goldmans and the Morques Ramp everything. 

Somebody's problem will be who is standing when the music stops.

Mon, 12/16/2013 - 15:43 | Link to Comment akak
akak's picture

Oh yes, there is absolutely no threat (and certainly no growing threat) to the worldwide reign of the US dollar, just as there is essentially no inflation in the US dollar as well, right Marc?

You fill Leo's shoes very well.  But just for good measure, you need to talk more about your breakfasts and lunches with financially and economically important figures --- that always adds to one's (woefully weak) credibility.

Mon, 12/16/2013 - 19:31 | Link to Comment old naughty
old naughty's picture

He could be right...for Jan and March, no?

Let's wait for the next 2-3 month figures just in we don't, as garypaul says, have head screwed up ass.

Mon, 12/16/2013 - 15:31 | Link to Comment garypaul
garypaul's picture

Thank you Marc for this excellent article. I like to see all sides of the story rather than have my head screwed up my ass :)

Tue, 12/17/2013 - 02:13 | Link to Comment mantrid
mantrid's picture

Agree, while demise of petrodollar is a long-term sure bet, ppl are often blinded by wishful thinking and make mistakes

Mon, 12/16/2013 - 14:47 | Link to Comment screw face
screw face's picture

Bull Shit,  China is Shorting the the Dollar  Aggressively, they get to go directly to the fed window, three weeks ago they stopped holding, and started flipping T. Notes.

Chow petrodollar......


China will nuke on it.

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