Investment Contrarians

China’s Quest to Make the Renminbi the Next Reserve Currency

By for Investment Contrarians | Jul 18, 2012

















China’s Quest to Make the Renminbi the Next Reserve CurrencyI’ve penned articles recently on China’s quest to have the next reserve currency of the world be the renminbi, otherwise known as the yuan and China’s official currency.

In unprecedented steps to circumvent the use of the U.S. dollar for the first time since the inception of the U.S. dollar as the reserve currency, China, Russia, Australia, the United Arab Emirates, and India are now transacting business with China denominated in yuan and not U.S. dollars.

The BRICS countries—Brazil, Russia, India, China, and South Africa—have decided they will trade with each other in their respective currencies, circumventing the use of the reserve currency entirely.

Since China has created transactions in yuan with Brazil, Russia, and India, South Africa was the “odd man” out—but not anymore. It is no secret that South Africa has the farmland and natural resources that China needs for its large population. What South Africa is missing is the capital to farm the land and get those resources to market. China has the capital, so South Africa will most certainly listen to China’s terms.

China and South Africa have agreed to use the yuan in their transactions, and more central banks in Africa are including the yuan as part of their foreign reserves.

China was also busy in the month of June signing a trade agreement, with Chile with the aim of doubling their trade in three years. Similar to Africa, China will provide the capital to expand Chile’s agricultural capabilities and enhance more mining exploration. Part of the agreement is to settle all transactions in yuan.

Of course, the yuan cannot be a reserve currency as long as it is not floated freely. The reserve currency needs to be free of any pegs and needs to be available worldwide.

China has increased the trading range of the yuan to the U.S. dollar, and has also tripled the amount of money international fund managers can invest in China. These are small measured steps on the road to the eventual complete unpegging of the yuan.

China also announced in June that it was creating a special business zone to test the yuan’s convertibility. Basically this controlled area would test the various scenarios of what would happen to the yuan’s value in particular circumstances in world trading if it was allowed to float freely.

The above are just some of the steps China is taking to make the yuan a more international currency and eventually a reserve currency. China is still a long way from its goal, but the steps above are a logical and methodical progression of steps for the country toward achieving its intended goal.

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  • andrea

    Thanks for mantenme informed of whats going on around the world;whos michael lombardi can you refresh my memory, how he know to mouch,it seems like everybodys hoping US hit like abrick wall,like he said and why US only cuz US is atrritory free of doing werever you want like doing business, etc,what about canada, yes i know here for exemple when you work suddenly you see there is another TAX or GST have being taken from your check without consultation they do what they think is right and people dont have a life they take 2 or 3 jobs to pay mortgage,bills,etc,and they live more in there jobs than there houses,there families are abandoned cuz there parent are taking 3 jobs , i did this i coudnt see my kids ,so the wordl took charge educating themcuz i was bussy working even with 3 jobs i coudnt make it,i dont have any save , no insurance of anithyn ,nothing,why ,so why only USA is in charge of to many critical,yes what about if i said there is to many people who have being bad administrator of usa and they go there to steal not to do something;I think USA have being so softh with everyone who go there and let everyone dominate there country and abuse them,even destroythem like the 2 buildingg ,how come they did that so easy and not security, what that hell is going on there wheres the security and protection, who is in charge there everybody in the world?it doesnt have to be that way.America has to be more cautious with people who wants to control there , america has to many enemies,cuz is a country where the system is diferent.thay hate america cuz is america,here you wil not see in inmigration latinos,blak,filipinos, native,is weir if you see those people in commands or in charge of the system why cuz they take care of the system rigth,why america live to be in the system everyone to be in charge especislly people who are from cultures thas has being growing up with the mentality of some kind weir system and you never can change them,they are like they are,that there culture,what am trying to said is america has to be more carefull with who is in charge os CIA,pentagones,etc staff like that that protect our country,america has being to mouch confiable with the think that has to be protected, thas my opinion…………………….

  • RR

    Someone did not complete high school.

    Certainly not grammar class.

  • Joe Hughes

    POTUS has us sliding into 3rd world status. Good Job.

  • Joe Hughes

    Andrea, you need to buy a dictionary. Your spelling is poor, your grammer is worse, and your world view is very limited. You must be an Obama supporter.