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The Rise Of The Yuan Continues: LME To Accept Renminbi As Collateral

Tyler Durden's picture




 

As far-fetched as the notion may be to those who are wedded - by choice, by misguided beliefs, or by virtue of being completely beholden to the perpetuation of the status quo - to idea that the dollar will forever retain its status as the world’s reserve currency, the yuan is set to play a critical role in global finance, investment, and trade going forward. 

We’ve long argued that the BRICS bank, the AIIB, and to an even greater extent, the Silk Road Fund, will help to usher in a new era of yuan hegemony in international investment and trade. A number of recent developments support this, including Beijing’s push for the renminbi to play an outsized role in loans doled out through the AIIB, the denomination of loans from the BRICS bank in yuan, and China’s aggressive investment in Pakistan and Brazil via the Silk Road initiative (here and here).

As for financial markets, China recently confirmed the impending launch of a yuan denominated gold fix which conveniently dovetailed with the LBMA’s acceptance of the first Chinese banks to participate in the twice-daily auction that determines London gold prices.

Now, in the latest sign of yuan proliferation and penetration, the renminbi will be accepted as collateral by the LME along with the dollar, the euro, the pound, and the yen.

Here’s WSJ with more:

China’s domestic stock market may be in turmoil but the country’s currency, known as the yuan or renminbi, is making a seemingly relentless push deeper into the global financial system.

 

The latest step: the London Metal Exchange, the world’s largest venue for trading metals where $15 trillion of metals was traded last year, is set to accept yuan as collateral for banks and brokers that trade on its platform.

 

The Chinese currency joins the U.S. dollar, the euro, the British pound and Japan’s yen, which are all currently permissible as collateral on the LME’s platform.

 

"In the commodities area, it makes absolute sense to start providing renminbi-denominated services," said Trevor Spanner, chief executive of the LME’s clearing house business. “The renminbi is on its way to becoming one of the world’s most widely used currencies” he said.

 

While largely a technical change, the LME move marks another milestone for China’s currency.

 

The yuan is now the fifth most used currency for international payments, ranking number seven a year ago, according to data from the Society for Worldwide Interbank Financial Telecommunication, a provider of payments services.

 

A Bank of England survey on Monday showed that trading in yuan rose 25% in London in the six months to April this year, even as trading volumes in other currencies fell by 8% on average over the same period.

The takeaway: irrespective of any damage China’s recent interventions into its domestic equity markets may have on the country’s SDR push, and regardless of whether the PBoC cash injection into CSF spooks the market and serves to accelerate short-term capital outflows, the internationalization of the yuan isn’t likely to be meaningfully derailed.

We’ll leave you with the following quote from Dan Marcus, CEO of London-based currency trading platform ParFX who spoke to WSJ:

"The rise of China’s currency on global markets is arguably the most significant development in currency trading since the introduction of the euro in 1999."

 

 

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Tue, 07/28/2015 - 18:48 | 6364807 wee-weed up
wee-weed up's picture

He who has the most gold...

Tue, 07/28/2015 - 19:05 | 6364871 markmotive
markmotive's picture

China's 1929 moment might set it back a few years...

http://www.planbeconomics.com/2015/07/china-1929.html

Tue, 07/28/2015 - 19:16 | 6364910 Diet Coke and F...
Diet Coke and Floozies's picture

Just wait till they depeg from USD...

Tue, 07/28/2015 - 19:33 | 6364966 knukles
knukles's picture

Well fuck me with somebody else's fiat.

Tue, 07/28/2015 - 22:47 | 6365645 Flatchestynerdette
Flatchestynerdette's picture

Fiat currencies are used like poker chips by the The Working Group on Financial Markets birthed under Pres. Reagan and Volker and now traded overnight by President O and his Treasury Secretary using GS as a trojan horse to stabilize markets from dropping to neutral to positive - aka The Plunge Protection Team by using monetary policy.

This being an election year/keynesian legacy issue, absolutely nothing will be allowed to happen between now and November 15th 2016 when all the votes will be counted and recounted and a president of the usa will have been elected.

Yuan/Renminbi are at the table just like $, yen, euro. All manipulated to maintain an even playing economic field for the US presidential elections. Under it all is rot & the people can feel it.

Wed, 07/29/2015 - 03:05 | 6366023 exonomic halfbreed
exonomic halfbreed's picture

I wonder what the Chinese elite plan to do.  Who will they align with in the end? Obviously they have allowed the Rabbinical Aristocracy to invest and gain some power and for sure the pilgrim society has their investments.  From about two thousand years ago to aprroximately 1700  the Chinese had the greatest financial empire on earth. These people (at the top) are smart enough to let the outsiders make the mistake of underestimating them.  Observations by some economist friends of mine (definitely not FED stooges) stipulate that the center of finance shifted to south east asia about 1999. When the center of finance moves, the oligarchs contrive to implode the economy of the receding empire as a neccesity (so as to reduce competition with the new empire. 

I suspect that the Chinese will be unpredictable.  Quite likely they will choose at the last moment in the SDR negotiations to walk away and be like the Swiss were a while back with a small portion of their currency backed by gold.  While their currency might drop and then recover a bit, the markets will take time to digest the choice they have to make.  They can follow the invaders who have dumbed down their own people, who have no problem killing innocents to spread democracy and the American way. The same idiots that do not stand up to their government when they lie and attack innocent countries will not be very attractive as allies for the Chinese. Or they can decide to align themselves with a people who stay within their own borders.  While I have no idea what they will do I am sure that some of the elite groups will be just as surprised as we peons.

Wed, 07/29/2015 - 11:28 | 6366977 old naughty
old naughty's picture

oh they have "allowed" alright...

they are "handled" for same  stretch of times...

muppets, oligarchs (house guests), and masters...always have been;

and always will be, unless "suprised", but not wat you expect tho.

Wed, 07/29/2015 - 00:14 | 6365817 Abitdodgie
Abitdodgie's picture

China own's the LME so did not see that coming.

Tue, 07/28/2015 - 20:21 | 6365181 tarabel
tarabel's picture

 

 

I'm not sure that would be a good idea for them.

By remaining pegged, it is easier for other nations to accept the Yawn as an additional currency choice-- since it is effectively 1/6th of a dollar or something like that.

Depeg and it will have to stand on its own. And will probably drop in value since most people think it is artificially overvalued. Which in turn decreases its desirability as an alternate reserve currency.

The whole point of a reserve currency is found in its alleged stability. Does the Yawn have that without a peg?

Tue, 07/28/2015 - 21:10 | 6365371 johnlocke445
johnlocke445's picture

You may find the yuan undesirable once they float freely, but when that time comes I'm all in. I'll be buying yuan with US dollars.

Tue, 07/28/2015 - 21:29 | 6365423 Implied Violins
Implied Violins's picture

It may actually be prudent to buy now, before they reveal that they are sitting on 30,000 tons of gold...

Tue, 07/28/2015 - 21:49 | 6365492 tarabel
tarabel's picture

 

 

I had no idea that John Locke approved of repressive. soul-crushing super-states.

Okay, in all due seriousness, you may well be making the move that will advance your own interests the most. Time will tell.

Personally, I distrust the whole lot of them and have done my best to disentangle my affairs from any risk of collateralization with their rapidly-approaching doom.

Backing one crook against some other crook still makes one an accessory to crook-dom. I may not have much, but whatever I have tonight, I will still have tomorrow.

Wed, 07/29/2015 - 04:04 | 6366067 The Merovingian
The Merovingian's picture

After watching the video of the Chinese woman getting eaten by that escalator over there, it puts a whole new perspective on going all in on anything made in China. So, good luck with that trade. I'd rather buy PMs versus any fiat.

Wed, 07/29/2015 - 06:19 | 6366179 JIMSJOE2
JIMSJOE2's picture

Actually most fx analyst believe that the yuan is way undervalued, taking into account their vast reserves, their export and industrial base and of course their gold holdings. They are intentionally keeping it pegged low to stimulate exports but realize when the IMF includes yuan in the SDR basket later this year, the peg must go. The value will rise and that is why China is spending so much capital and effort in creating a very large internal consumer economy to offset the fall in exports when they depeg. 

All countries starting 1/1/2016 will be able to trade their dollar holdings and treasuries to SDRs through the IMF which will be used for all trade until the dollar trades winds down. The IMF will liquidate dollar assets slowly as to not cause a collapse in the US economy. The dollar, ( purchasing power of the US consumer), will fall in value making all imports to the US cost more.  If anyone has noticed, China is not waiting for the first of the year to unload it's dollar assets, selling over 400b just last month and billions for months before that. This makes the US very unhappy with the Treasury having to soak up so much of their own assets. Which makes you wonder who is behind the concentrated economic attack on the Chinese stock exchange? But the Chinese shot back and in one day closed, the NYSE, the WSJ web site, United airlines, etc., etc. They could have easily closed all US markets, power grids and all airlines. These are interesting times we live in!!!

jj

Tue, 07/28/2015 - 19:07 | 6364878 freewolf7
freewolf7's picture

I know all about the yuan, because I see it on the news all the time.

Tue, 07/28/2015 - 18:53 | 6364827 medium giraffe
medium giraffe's picture

Now you pray Chinese casino, prenty good, prenty big prizes.

Tue, 07/28/2015 - 18:56 | 6364836 Row Well Number 41
Row Well Number 41's picture

The Chinese are to ham handed to take over from us yet, their handling of the stock market shows that.  You would think they would have learned more about how to do this after watching the PPT work for 20 odd years.

 

#41

Tue, 07/28/2015 - 19:06 | 6364876 nakki
nakki's picture

In a world awash with paper promises the dollar is still, unbelievably king. 

Tue, 07/28/2015 - 20:06 | 6365112 MontgomeryScott
MontgomeryScott's picture

"In a world awash with paper promises the dollar is still, unbelievably king."

UNTIL IT ISN'T.

Tick, tock...

Tue, 07/28/2015 - 21:03 | 6365344 pacu44
pacu44's picture

IN a world where biggest military wins and the nut jobs who control the fire button...

Tue, 07/28/2015 - 19:14 | 6364901 falak pema
falak pema's picture

Well the shanghai still is around 3600 so it has a long way to go to 2000; where it was 12 months ago.

Meanwhile; if Saud wants to change horses....seen that Obama has changed hobby horses...

Tue, 07/28/2015 - 19:43 | 6365004 dsty
dsty's picture

economic warfare from the US heats up

too bad we have to guess what it is

sneaky buggers

Tue, 07/28/2015 - 19:54 | 6365039 sudzee
sudzee's picture

I am waiting for the day Canada decides to sell oil for yuan. Shouldn't be long now.

Tue, 07/28/2015 - 21:10 | 6365365 Bindar Dundat
Bindar Dundat's picture

NEVER HAPPEN.  No chance Canada would be that stupid because if they did they  would become the 51st state faster then Trump says "your fired."  

Tue, 07/28/2015 - 21:37 | 6365456 Squid-puppets a...
Squid-puppets a-go-go's picture

they already are the 51st state. Going Yuan is depegging from the empire

Tue, 07/28/2015 - 20:14 | 6365148 MontgomeryScott
MontgomeryScott's picture

I guess the neocon writers of the PNAC era were wrong as far as the 'new Pearl Harbor' that they described (initiated!) having the effect of keeping America the dominant global hedgemony.

 

Chief Engineer (Mr. Sacrelige), out...

Tue, 07/28/2015 - 20:31 | 6365223 magnetosphere
magnetosphere's picture

lmao $15 trillion of metals ahaha

Tue, 07/28/2015 - 21:06 | 6365352 johnlocke445
johnlocke445's picture

Once this currency floats freely I'm selling my US dollars and buying yuan.

Tue, 07/28/2015 - 21:47 | 6365490 Peter Pan
Peter Pan's picture

While China's currency is gaining a bigger foothold, China will not rock the boat with the USA nor will China unleash its gold stack on the system.

What the USA does not realise is that once China has the foot well and truly in the door, it will move in and redecorate the system.

Tue, 07/28/2015 - 22:53 | 6365666 Dr. Bonzo
Dr. Bonzo's picture

Pfffff... the rise of one fiat fraudulent currency for an even larger fiat fraudulent currency. A currency backed by cardboard dumplings and slave labor. This ought to be fun.

 

SMFH.

Wed, 07/29/2015 - 01:03 | 6365892 onmail
onmail's picture

Thats called fighting fire with fire, Dr. Bonzo

Wed, 07/29/2015 - 01:13 | 6365906 onmail
onmail's picture

LME London Metal Exchange

Thats Great

That means this :

LOAN IN EXCHANGE FOR GOLD 

----

Only a foolish lender will give loan w/o any collateral .

And China must take Gold in  exchange for loan (period).

----

Btw thumbs up and good wishes for NDB of BRICS, AIIB & Silk road fund. Go for it remove these western junkies who lead filthy rich lives, smoke heroin , coke & pot, eat lavishly & live in mansions with swimming pools , manicured lawns, exotic pets & what not.

While the poor of the rest of the struggle to work 12 hrs a day in factories , getting paltry sums of money , eat boiled rice, live in shanties --- only to produce luxury goods for the consumption of the rich west & their allies.

Wed, 07/29/2015 - 01:56 | 6365955 Loucleve
Loucleve's picture

$15 TRILLION of metals? 

And what about the yuan?  down much?

Wed, 07/29/2015 - 02:26 | 6365991 JC-BI
JC-BI's picture

It's part of the American Decline. If only the US would stop its warmongering and concentrate on the economy. It's the wars, STUPID!

https://biblicisminstitute.wordpress.com/2015/06/25/warmongering-vs-econ...

Wed, 07/29/2015 - 02:56 | 6366021 Watson
Watson's picture

>>>
"The rise of China’s currency on global markets is arguably the most significant development in currency trading since the introduction of the euro in 1999."
<<<

It's far more significant than the EUR.
Economy behind the Yuan makes and sells things the rest of the world wants to buy.

The EUR is just a political construct, only thing that gives it credibility is Germany (because Germany also makes and sells things the rest of the world wants to buy).
When Germany finally decides the various costs of EUR membership exceed the residual guilt for WW2 (probably no-one in power now was even _alive_ during WW2, let alone played any part), Germany will return to DEM.

When that return happens, EUR becomes nonsense currency like the old Italian Lire or French (new/old/very old) Franc.

Watson

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