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Bundesbank Warns China's Currency "On Its Way To Becoming Global Reserve Currency"

Tyler Durden's picture




 

Following the most recent shift 'away' from a USD-centric world (with the China-Australia direct currency convertibility), it seems the possibility of China's Yuan as the next global reserve currency is getting closer. The Brits, Germans, and now the Swiss (who just signed a free-trade-agreement with China) are all actively vying to become Europe's Yuan trading hub as it seems the long line of developments to internationalize the currency over the past two years. As Bundesbank board member Joachim Nagel noted in a speech entitled "Reniminbi as a potential reserve currency" this week, "the Chinese currency is well on its way to becoming one of the future global reserve currencies." He noted that, although the USD is still the most commonly-used currency for settling trade with China; from virtually zero in 2010, the Yuan is used to settle over 12% of trading transactions now - and is likley to increase further.

 

Remember, nothing lasts forever:

 

This latest development in global currency relations should come as no surprise to those who have followed our series on China's slow but certain  internationalization of its currency over the past two years. To wit: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", and "Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility."

 

Via Deutsche Bundebank (Dr. Joachim Nagel),

Renminbi as a potential reserve currency

According to Bundesbank Executive Board member Joachim Nagel, the Chinese currency is well on its way to becoming one of the future global reserve currencies. This potential stems from the renminbi’s increasing convertibility, he said at a conference of the Chamber of Industry and Commerce in Frankfurt.

He emphasised that although the US dollar is currently the most commonly used currency for settling trade with China, the significance of the renminbi has increased greatly over the last few years. He underlined this by referring to figures published by SWIFT, which indicate that the percentage of trading transactions settled in renminbi jumped from virtually zero to around 12% between 2010 and 2012 – and is likely to increase further. In view of this, he pointed out that the renminbi has already achieved the status of a trading currency.

Drawing parallels to the Deutsche Mark

Mr Nagel compared China’s growing importance with the German economic miracle of the 1950s and drew parallels between the renminbi's current growth and the development of the Deutsche Mark. Thanks to the recovery of the German economy, the country accumulated a large volume of foreign exchange reserves and the Deutsche Mark acquired the status of a global investment and reserve currency, he explained. He anticipates that "the renminbi is certain to have similar long-term prospects if market access is liberalised further". Mr Nagel backed up his comments by citing a survey of reserve managers carried out by RBS. The survey revealed that 14% of reserve managers have already invested in renminbi, with 37% of respondents considering investing in the currency in the next five to ten years.

Mr Nagel sees the renminbi as currently transitioning from a being trading currency to an investment currency. While both inward and outward direct investment is now possible, portfolio investments will continue to be regulated, he remarked, adding that improvements are expected in this area. "The internationalisation process of the Chinese currency is taking place more gradually than was the case with the Deutsche Mark, which, at times, was subject to radical upheaval", he added. Mr Nagel recalled, in this context, the collapse of the Bretton Woods system of fixed exchange rates and the crisis in the European Monetary System at the beginning of the 1990s.

Renminbi financial centre in Frankfurt

Mr Nagel noted that "given China’s growing economic importance, the internationalisation of the renminbi seems long overdue". He explained the Chinese government’s decision to employ offshore trading centres, which would allow China to establish its currency internationally, while protecting its domestic financial system. Hong Kong, where around 80% of all renminbi trade is settled, is by far the most important trading centre for the currency, with London and Singapore each accounting for 4% of renminbi trade since mid-2012. He added that the expansion of the market has led to the growing significance of other financial centres for renminbi. 

Mr Nagel welcomed Frankfurt’s endeavour to position itself as a trading hub for the Chinese currency, calling it a step in the right direction, towards the free movement of capital. "The high level of interaction between China's and Germany's real economies highlights the necessity for a more active renminbi trade", Mr Nagel remarked, "perhaps even using Germany as a hub"

 

Full Speech available here.

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Sat, 07/06/2013 - 15:00 | 3726648 TeamDepends
TeamDepends's picture

Got gold?

Sat, 07/06/2013 - 15:17 | 3726686 sgorem
sgorem's picture

like this headline is some kind of secret? give us a break.

Sat, 07/06/2013 - 15:21 | 3726697 James_Cole
James_Cole's picture

...and then China will declare the yuan gold / silver backed, US will crater and goldbugs will take over the world!

J/k goldbugs.

"the renminbi is certain to have similar long-term prospects if market access is liberalised further"

Needs moar neoliberalism! China is now the last best hope for mankind's wallet!

Sat, 07/06/2013 - 15:42 | 3726735 SamAdams
SamAdams's picture

12% already... You people understand the life cycle curve?  Rapid transition in the near future.  Gold and silver are good but will likely be confiscated or controlled to where physical trades on black market.  The USA will regress, but the connected will be delighted as Agenda 21 moves the unclean to stack and pack cities.  Meanwhile, the parasitic International Bankers enjoy their new host and its reserve power.  

Sat, 07/06/2013 - 15:58 | 3726760 knukles
knukles's picture

They're lying.  It's all good.  Don't listen to the Conspiracy Theorists and "Nattering Nabobs of Negativism"*. 

 

*Many thanks to the greatest philosopher of the 20th Century, Spiro Agnew

Sat, 07/06/2013 - 16:07 | 3726771 strannick
strannick's picture

Yesterday the Canadians said they want CDN Yuan swaps and Toronto to be a Yuan trading hub as well

Sat, 07/06/2013 - 17:29 | 3726899 dog breath
dog breath's picture

Convert dollars to yen.  Just hide it in your mattress.

Sat, 07/06/2013 - 17:52 | 3726937 FEDbuster
FEDbuster's picture

So does this mean we can send all our deadweight, non-productive, EBT card carrying parasites to fill their "ghost cities"?    

Sat, 07/06/2013 - 18:18 | 3726984 Overfed
Overfed's picture

Peopleholding hard assets will be far better off than those holding IOUs.

Sat, 07/06/2013 - 17:47 | 3726929 Blano
Blano's picture

It's news to 99% of the people in the US and A.

Sat, 07/06/2013 - 14:52 | 3726650 francis_sawyer
francis_sawyer's picture

No Stairway... DENIED!

Sat, 07/06/2013 - 15:20 | 3726693 Goldilocks
Goldilocks's picture

Led Zeppelin - Gallows Pole (Studio Version - Best Quality)
http://www.youtube.com/watch?v=aM1sx4HICW8 (4:55)

Led Zeppelin - Houses Of The Holy
http://www.youtube.com/watch?v=KSd3yys69AE (4:03)

Led Zeppelin - When The Levee Breaks (Studio Version - Best Quality)
http://www.youtube.com/watch?v=wEKkJHSO8A0 (7:09)

Sat, 07/06/2013 - 14:56 | 3726654 Tinky
Tinky's picture

But the U.S. Dollar is Weimar, I mean way more attractive and stable than the Renminbi, isn't it?

Sat, 07/06/2013 - 14:58 | 3726656 Peter Pan
Peter Pan's picture

That's all we need. Two major reserve currencies that are both fiat and which stand atop two sick and unbalanced economies each with its own problems.

Sat, 07/06/2013 - 15:08 | 3726672 YC2
YC2's picture

When you put it that way, it seems inevitable

Sat, 07/06/2013 - 17:53 | 3726938 FEDbuster
FEDbuster's picture

Central Banker's wet dream.

Sun, 07/07/2013 - 04:19 | 3727834 TPTB_r_TBTF
TPTB_r_TBTF's picture

<-- ainT Gold Bug

<-- i m Gold Bug

 

What the Gold Bugs donT understand is

the "possibilty" of a new fiat taking over from the old fiat

all without their stack rising in value.

 

(ooops, that wasnT s'posed to happen...)

 

Disclaimer:  i am not saying this will happen.  Just postulating it as slightly possible.  But go ahead an neg this post!  Since you donT like this particular ending to the story.

 

Remember, a Black Swan Event is the outcome you didnT expect, any outcome you didnT expect.  If you expect your stack to go up in value, then your Black Swan Event is one in which the stack goes down or disappears (confiscation, boating accident...). 

Well Gold Bug, too bad you canT neg me twice...

Sun, 07/07/2013 - 04:34 | 3727841 TPTB_r_TBTF
TPTB_r_TBTF's picture

Addendum:

 

Of course, one should still posess PMs, to carry any wealth through the coming Managed Crisis to the Other Side.

 

However, the expectation of more wealth through PMs is a bit optimistic...

And an increase in "price" is not an increase of wealth, when the price of everything else i *need* (food, energy) goes up simultaneously.

Sat, 07/06/2013 - 14:58 | 3726657 InvalidID
InvalidID's picture

 

 It'll take 50 years for this to happen... The dollar isn't backed by oil, good policy, gold, etc. It's backed by military strength, and no one can match it as yet.

Sat, 07/06/2013 - 15:02 | 3726664 Tinky
Tinky's picture

Too simplistic, and your timeframe is wildly far off (pun intended). Do you imagine that the U.S. can use its guns to force the 12% (and growing) not to bypass the dollar?

Sat, 07/06/2013 - 15:13 | 3726678 InvalidID
InvalidID's picture

 Saddly, yeah I do. Why did the US attack Libya and Iraq? To defend the dollar. The threat of invasion isn't the only issue to deal with though. It's not just old style military power that the US is throwing around. It's technical power. It's little things people don't think about like shipping lanes. It's the economic hit many nations would take if the US packed up it's global military bases and went home. Europe would be up a creek in that case yeah?

 Then there's the IT threat. The US military can pretty much shut down any digital operation in the world if it wants to. That's a SERIOUS weapon. It's much more complicated than dropping bombs or rolling in tanks any more. And much more detailed than I'm getting into here of course.

But China? China isn't the threat people think it is, there's already a lot of cracks in the facade there. The Yuan isn't going to usurp the dollar any time soon. No one trusts any number ever printed by China. We don't really trust the US either, but people are simple. Better the evil you know than the evil you don't know.

 Gold might take a shot at the greenback, but that's touch and go at best. I think silver has a better chance, or a "global" currency, run by Goldman of course.

 

 (And there's something else to consider. Who's running all the central banks again?)

 

Sat, 07/06/2013 - 15:47 | 3726743 SamAdams
SamAdams's picture

Military strength is due to technologically advanced weaponry.  Weaponry designed by creative scientific minds and built from largely imported raws. Need I explain further?

Sat, 07/06/2013 - 17:11 | 3726878 InvalidID
InvalidID's picture

 

 All run on imported oil no less. But the catch (to me anyway) is that the US has all the raw materials it needs to run the military without a single import. It simply doesn't want to use it's own materials right now. Why burn your own gas when the neighbor will drive you to work for cheap?

Sat, 07/06/2013 - 22:16 | 3727438 Ginsengbull
Ginsengbull's picture

So Germany is going to give it another go, eh?

Sun, 07/07/2013 - 04:55 | 3727847 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

 

Need I explain further?

No, please donT.

 

Quantity of weapons/personell can hold up against Quality of weapons/personell.

 

The Battle of Mogadishu is a good example.  Who won the Battle of Mogadishu?  The Yanks left Somalia shortly after the battle, so did they win?

 

The ratio of dead sheeple can serve as a scorecard for the battle:

 

The battle resulted in 18 deaths, 80 wounded, and one helicopter pilot captured among the U.S. raid party and rescue forces. One Pakistani soldier and one Malaysian soldier were killed as part of the rescue forces. American sources estimate between 1,500 and 3,000 Somali casualties, including civilians; SNA forces claim only 315 casualties, with 812 wounded (wiki).

18 : 1,500 ?

18 : 3,000 ?

18: 315 ?

Whichever ratio you choose, Quantity won the War.  Quality lost.

We can debate whether the above numbers are accurate.  But that would be beside the following point-  the ratio of dead quality-soldiers to dead quantity-soldiers-and- collaterals tells us, that yes, quality can "win" the day. But quantity won the war.  Ditto Vietnam.

The West's (US and NATO-minions) weapons will take out a huge swath of brown people, but in the end, the brown people win.

 

Your tax dollars at work...

 

A brown boy need only an AK, a handful of rounds and a handful of beans.  Such a military is considerably more sustainable than what a high-tech military is.  And the brown boy donT even need the AK nor the rounds.  He can just wait til the boy in front of him goes down and then pick up the dropped AK... 

Quantity will win over Quality.

Sun, 07/07/2013 - 10:32 | 3728061 InvalidID
InvalidID's picture

 

 This line of thought doesn't take into account the cost benefit ratio of Somalia. What did the US have to gain by staying and fighting it out in Somalia? And, if the US had decided to stay in Somalia do you really think the skinnies would have had a chance? IF the UN/US REALLY wanted to be there, every hostile person there would be dead.

Sat, 07/06/2013 - 16:33 | 3726804 Go Tribe
Go Tribe's picture

Was thinking the same. Seems militaries have been used for eons to protect trade routes and shipping lanes. Until China can defend its currency the dollar will prevail.

Sat, 07/06/2013 - 18:11 | 3726972 Vendetta
Vendetta's picture

Throwing bankers in jail for 30 years would 'defend' the dollar and it would be a lot easier than 'invasions'.  If they are actually trying to 'defend' the dollar its not working.

Sat, 07/06/2013 - 18:44 | 3727034 LongBallsShortBrains
LongBallsShortBrains's picture

Ah...there lies the rub. They want to defend the dollar and continue to print. Eat your cake and have it too? The same virgin again? Perpetual motion.

Nope. Just a temporary retracement of reality in order to acquire great power and wealth.

From you. From me. Through taxation.

Next

Sun, 07/07/2013 - 01:03 | 3727703 yatikto
yatikto's picture

Yeah, but I have a sense that US military has not been tested.  Who have they beat in recent wars?

US military is getting fat and corrupt and at some point going to get hit in the mouth and embarrased.   That's when you can kiss dollar goodbye.

Sun, 07/07/2013 - 10:34 | 3728063 InvalidID
InvalidID's picture

That's what the Japs thought too... Of the major powers the US is the only military that's been active, really active, constantly. The US has quite a few veterans in it's ranks that are under 30 years old. How many vets does China have? Where have it's troops been?

Sat, 07/06/2013 - 15:13 | 3726679 Crisismode
Crisismode's picture

Doesn't matter.

 

As long as the mideast continues to accept digital petro-dollars for oil . . .

the rest is just noise.

 

Sat, 07/06/2013 - 15:16 | 3726685 InvalidID
InvalidID's picture

 

 And the minute they don't what would you bet we stop 'policing' the sea lanes and 'keeping the peace'? If they stop taking the dollar they will end up looking like Africa and no one gets oil...

Sat, 07/06/2013 - 16:25 | 3726792 LetThemEatRand
LetThemEatRand's picture

"And the minute they don't"

There will be major war.  But I'm in agreement with you that it won't happen any time soon.  The royal families (you know, the ones that capitalism isn't supposed to support) rely on U.S. military support as you suggest, and they will only abandon the U.S. if their sheeple revolt which is also unlikely.  Those populations are well controlled by religion and force like most of humanity throughout history.

Sat, 07/06/2013 - 17:16 | 3726885 InvalidID
InvalidID's picture

 

 That's what I'm saying. If they backed off the dollar we'd be sure they went back to tribal status in a heartbeat. The area would be in turmoil for at least 20 years (with little to no oil being produced) then when someone finally pulled it all back together... We'd likely invade and take it all... again.

 During the turmoil the US, Russia and Canada would laugh at the world and grow fatter than ever.

Sat, 07/06/2013 - 17:11 | 3726873 rbg81
rbg81's picture

Has anyone been to China?  I have.  Don't believe the propaganda--China is overrated.  Development wise, its much closer to Mexico than the US.   A lot of high rises going up, but they are of poor quality.  They start crumbling as soon as they are finished.  Even in Beijing, you have pockets of grinding poverty on sidestreets off of prosperous shopping areas.  And don't even get me started on Chinese squat-toilets (and bathrooms with no toilet paper).  China has a long, long way to go.

Sat, 07/06/2013 - 22:09 | 3727429 Ginsengbull
Ginsengbull's picture

No need to engage anyone directly.

 

Just make it look like their trading partner has itchy trigger fingers, and sit back and watch the fireworks.

Sun, 07/07/2013 - 00:54 | 3727692 yatikto
yatikto's picture

I agree.  One of the effects of Snowden is that he became a weather balloon to test the temperature of fear of US.  Its still pretty high.  US's soft power is exhausted though and will become incresingly beligerent,  internationally and domestically.

Sat, 07/06/2013 - 15:02 | 3726662 Donlast
Donlast's picture

So that's why China is accumulation gold and Germany wants its gold back. Who'd have guessed...

Sat, 07/06/2013 - 15:03 | 3726665 greatbeard
greatbeard's picture

I'm under no illusion that the Chineese will be any more benevolent than the Yankees have been.  And although I live and die by the dollar, being an American, I say fuck the dollar.  Bring it on, bitches.  I've watched the PTB, who control the dollar, use this control to enrich themselves, and their cronies, at the expense of the workers, and the savers, and the old, and the weak.  In my best Wu immitation, "cocksuckers."  Gold and silver represented the lifeboats of folks who just want to protect what they have from the ravages of inflation, and when these cocksuckers decided to machine gun the lifeboats, that's the final straw.  Bring on the new batch of sociopahtic cocksuckers because I've had my fill of the old batch of sociopathic cocksuckers.

Sat, 07/06/2013 - 15:30 | 3726714 suicidalpsychologist
suicidalpsychologist's picture

Looks like someone is not part of the 1% !

 

8D

Sat, 07/06/2013 - 15:33 | 3726720 css1971
css1971's picture

World reserve currency status is a double edged sword. Some people will make a bundle from it, for a lot, it will make them too expensive to employ. To prevent huge deflationary forces from all the money leaving the country the government has to print copiously and they have to think of things to spend the money on, this tends to come down to the military., making the Military Industrial Complex very wealthy and powerful.

It gives the corporations of the country with the world reserve currency a huge boost, they get to borrow in one of the strongest currencies with interest rates that are far lower than they would be for a similar company in another country, it makes acquisitions easier.

The corruption of the political process is largely inevitable as interests try to get to the trough, though I doubt that's much of an issue for China. Government contracts become perhaps the single most lucrative area for any business, if you can get the money which has just been printed before anyone else, you get the buying power before inflation kicks in generally.

Imports are cheaper than they would be otherwise.

Some people definitely benefit hugely but your ordinary person only a little. They get cheap imported crap.

Sat, 07/06/2013 - 22:01 | 3727420 Ginsengbull
Ginsengbull's picture

Some people give financial advise for years, and nobody ever refers to them as "financial advisors"....

 

But if they just suck one little cock...

Sat, 07/06/2013 - 22:33 | 3727462 Oldballplayer
Oldballplayer's picture

Uptick for the Saturday night Deadwood reference. Gotta love cocksuckers and shirt heel operators.

Sat, 07/06/2013 - 15:04 | 3726666 valkir
valkir's picture

Yes,dollar is backed by military.But often in the battle,the winner is not the one with more muscules,but this one,with more brain.

Fuck you Bernanke and all of your comrades.

Sat, 07/06/2013 - 15:15 | 3726682 InvalidID
InvalidID's picture

 

 THe war is won by the guy with the best intel.... Goldman has taken over how many central banks?

Sat, 07/06/2013 - 15:24 | 3726702 Bear
Bear's picture

The next new nation ... Global Squid Interational with representation world-wide and no borders to constrain it's tentacles or testicles

Sat, 07/06/2013 - 15:33 | 3726721 InvalidID
InvalidID's picture

 

 HA! That's funny right there!

Sat, 07/06/2013 - 15:08 | 3726673 kareninca
kareninca's picture

All the Chinese people I know want to have their money in dollars, euros and pounds.  Or real estate.  NOT in yuan.  They believe that the renminbi is greatly overvalued, and don't trust it to retain its present purchasing power.

I would love the U.S. dollar to have more competition.  Maybe we'd actually cut spending, then.

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