China’s Bold Currency Move Against U.S. Dollar

China has allowed direct trading between the yuan and the Swiss franc, in a further effort to bolster its national currency’s presence on the world stage by making it freely usable.

Benefit from the RMB Yuan internationalization, according to her, Chinese companies, in particular privately owned enterprises and small and medium enterprises, will be able to use RMB Yuan for cross-border trade instead of a foreign currency in order to avoid foreign exchange costs as well as exchange risk.

Still, in a recent report by the U.S. Treasury Department, the Obama administration said the yuan “remains below its appropriate medium-term valuation”, though it did not accuse China of manipulating currency.

China is seeking to promote the yuan, also known as the renminbi (RMB) as a global reserve currency alongside the dollar.

As we reported late last month, three people briefed on International Monetary Fund discussions said a draft report by agency staff reached a favorable conclusion on including the Chinese currency in the Special Drawing Rights basket. Traders expect more action later on Thursday with no less than five US Federal Reserve officials due to speak. Offshore yuan was trading 0.44 percent weaker than the onshore spot rate at 6.3902 per dollar.

People’s Bank of China set the mid price at 6.3628, weaker by 14 basis points which is the ninth day in a row the central bank set the mid price fix for the currency weaker. “Through manipulation of the yuan, the Chinese government has been able to tip the trade balance in their direction by imposing a de facto tariff on all imported goods”.

The yuan became the fourth most-used currency for cross-border payments in August, with more than 100 countries using it for transactions. Before this move, only the USA dollar, the British pound, the euro, the Japanese yen and the Australian and New Zealand dollars could be converted into Chinese yuan. I think they are going to eliminate the peg.

But China’s economy is slowing as it makes the transition: It is expected to expand 6.8 per cent this year -enviable growth for the mature economies of the United States and Europe but the slowest for China since 1990. That’s going to be the sun setting on the American century. “But China has spared us from having to deal with those problems”.