Yuan to be a global currency

From the Wall Street Journal – the state-controlled Bank of China Ltd. is allowing customers to trade the yuan, also known as the renminbi, in the U.S. The decision is the latest move by China to allow the yuan, whose value is still tightly controlled by the government, to become an international currency that can be used for trade and investment.

“We’re preparing for the day when renminbi becomes fully convertible,” Li Xiaojing, general manager of Bank of China’s New York branch, told The Wall Street Journal. He said the bank’s goal is to become “the renminbi clearing center in America.”

Bank of China’s move comes at a time of U.S. pressure on China to let its currency rise in value. America has blamed an unfairly valued yuan for exacerbating the U.S. trade deficit with China. But the preparations for convertibility are also a sign of Chinese strength, as China, now the world’s second-largest national economy, recognizes that as a global power it must have a global currency. In time, a globally traded yuan could emerge as a store of value on par with the dollar, euro and yen.

2 thoughts on “Yuan to be a global currency

  1. Robin Watkins

    Are wages increasing in China to the point that some companies are reducing their investment in this country. This should be investigated to see what really is going on in the world of commerce.

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  2. Mark Post author

    There is a lot of talk of higher wages in China which may mean it could lose its labour-cost advantage. China’s government has increased the minimum wage and is also providing social welfare – however to what extent I am unsure. Nevertheless, what the data has been showing is that the minimum wage is normally much lower than the effective wage, and thus has not changed the fundamental relationship between wages and labour productivity. Will companies leave China for say Vietnam and Bangladesh? Maybe but this depends on the productivity in those countries not so much the nominal wage in China. At present it seems that China still has a significant comparative advantage.

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