Investment Contrarians

Yuan

The yuan is the primary unit of the renminbi, which is the official currency of People’s Republic of China. Renminbi means “people’s currency.” It is used in mainland China, but not in Hong Kong, where they have their own currency, the Hong Kong dollar. The yuan has been pegged to the U.S. dollar. Since 2005, the Chinese currency has been allowed to float, albeit in a tight range, as pressure from international governments is pushing Chinese officials to allow the yuan to appreciate. Some estimates are that the yuan is almost 40% undervalued, giving China a competitive advantage. While those figures are impossible to quantify, having a more free-floating exchange rate will be the real test in calculating where the value of the yuan really is.


Wake-Up Call for America: China’s Currency Growing Worldwide

By for Investment Contrarians | Jan 31, 2013

China’s Currency Growing WorldwideWhile many people are aware that the Chinese economy is now the second-largest in the world, China’s currency, the yuan or renminbi, is also moving upward in the world rankings in terms of global transactions.

According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the world’s global payment system, the yuan has moved up from 20th in the rankings in January 2012 to 14th position in December 2012. The Chinese yuan is now above the Danish kroner in terms of global payments. (Source: “RMB Tracker: January 2013,” Society for Worldwide Interbank Financial Telecommunication web site, January 24, 2013.)

That is a significant move and an indication that the Chinese economy is becoming more integrated worldwide.

Why does this matter to the average American?

For a long time, America’s economy has been the global leader and the U.S. dollar has been the global reserve currency. Every other nation was seen as secondary to America’s dominance. This is now starting to shift.

As the U.S. national debt level continues to grow, the strength of the Chinese economy is enabling considerable efforts to be made at developing globally interconnected markets that can survive and thrive without the U.S. dollar.

While the Chinese economy is certainly not perfect, it doesn’t have to be. With the rising level of U.S. national debt, the Chinese economy just needs to be relatively better than the U.S. economy, though not in absolute terms.

The point is that the rise of the Chinese economy over the past decade and the looser restrictions that the Chinese government is placing on the yuan mean that global businesses and investors have … Read More


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 … Read More


The New Economic Cold War

By for Investment Contrarians | Jun 14, 2012

In a previous article, I wrote about the U.S.’s grave mistake in cutting off the emerging economies from using the U.S. dollar—the reserve currency—in transactions with Iran.

I argued that these countries not only represented a significant portion of the population of the world, but they are also the fastest growing economies in the world.

For the first time in their history, this month, the second-largest economy of the world, China, and the third-largest economy of the world, Japan, began a foreign exchange system to trade in yen and yuan directly, without the use of the reserve currency.

All trade that occurred between China and Japan was previously transacted in U.S. dollars. No more reserve currency.

This, of course, comes on the heels of Russia and China trading in their own currencies, once again circumventing the reserve currency of the world.

The use of the U.S. dollar—the reserve currency—among emerging nations will continue to decline, as 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.

China has led the charge against the reserve currency to the point of even directly using its own currency—the yuan—in transactions with Australia and United Emirates, when all previous transactions were denominated in U.S. dollars.

When the initial sanctions were placed on Iran, China urged the other emerging nations to use the yuan instead of the reserve currency. India chose to use its own currency instead of the yuan, while other emerging economies bartered with Iran by exchanging oil for various food stuffs.

So, what happens … Read More