September 29th, 2011
02:41 AM GMT
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Hong Kong (CNN) - Chile and Venezuela, two countries in the opposite of the South American political spectrum, have something in common: both are interested in the Chinese yuan, or renminbi.

With the growing clout of the world’s second largest economy and the slow but constant strengthening of its currency, the yuan is an increasingly attractive choice for reserve currency. While there currently are restrictions in its transactions, the two South American countries lead the flight from the U.S. dollar in the region.

In its latest monetary policy report, the Chilean central bank introduced a new item in its balance sheet with the appearance of $91 million of the country's reserves in yuan. It's a first exploratory step, according to high-level officials from the country. "It's about 0.3% of the international reserves," bank officials said in an e-mail to CNN. Still, plans are afoot in Chile to increase its Chinese currency holdings, bank officials said.

Venezuela announced the withdrawal of its reserves from their traditional seat in Europe and the U.S. back to its country and other emerging markets. Nelson Merentes, president of the country's central bank, made statements in favor of the Chinese currency. "It's logical to look for diversification in countries with solid economies that have protective shields like China," Merentes recently told journalists.

Beijing designated Hong Kong as a renminbi trading center, and growth in transactions here by states or companies place the city at center stage of the nascent moves toward the yuan as a global reserve currency. The currency's footprint has spectacular growth, according to the boss of the Hong Kong stock market.

"Deposits in Renminbi in Hong Kong have grown from HK$50 billion (US$6.5 billion) to HK$500 billion (US$64 billion) in a matter of fifteen months," Ronald Arculli, Chairman of the Hong Kong Stock Exchange, told CNN.

Together with deposits, yuan-denominated bonds have helped finance international companies like McDonald's and Unilever.

To be sure, the yuan has far to go to usurp other foreign reserve currencies of choice, such as the U.S. dollar, the euro and the yen. Nations and companies, however, are drawn to the growing strength of the yuan – although the rate of growth is tightly controlled by Beijing, which allows only limited daily increases in its value against the dollar. This, of course, is a frequent source of tension between Beijing and other economies.

There's no date yet for the yuan's free flotation. Arculli suggested it may happen in a not-so-distant future. But to allow economies to access the renminbi there have to be banks supplying these services. In South America, deployment is underway.

"A number of banks, for instance in Brazil, are already sending delegations to Hong Kong, they’re looking at the possibility of setting up a representative office or even a branch office,” Arculli said. “The financial sector is already moving ahead of their customer needs.”

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soundoff (29 Responses)
  1. Stephane muller margot

    I think the key point is not does Yuan is going to be global currency or not.time by time yuan will be used in international trading .since. 3 years ,china has some agreement with some various to do trading in yuan or even has do currency swap in difference countries as Argentina .few countries has to have more Yuan is their respective bank reserve as Nigeria 2 weeks ago .Iran ,venezuala asked too.my guess by the uncertainty and volatility with Us dollars ,it is better to used Yuan to do international trading.Some countries has asked to have a panel of currency to create a single currency composed of panel of currency to protect against currency flutuaction .Yuan will be more and more important in the next coming years.this move has to take time to avoid unbalanced monetary situation and devaluation of others countries.

    September 29, 2011 at 4:14 am |
  2. André

    The world needs a single currency and since the size of government bureaucracy is bankrupting the USA and Europe by expanding there, whilst in China it is going the opposite direction, perhaps the Yuan will be it..

    September 29, 2011 at 4:59 am |
  3. Kyle H. Davis

    Oh, sure... it's great to think about what the eventual rise in the Yuan will mean for currency investors, but... as a GLOBAL currency, people would have to be insane to consider it.

    It looks "good", solely because of the 30+ years of manipulation against the $, to increase trade for China. The value of the Yuan is solely at the discretion of the Party, and has nothing to do with economics (internal or external), and its purchasing power within China is not reflected in its trade value.

    The government of China bases the value solely on the needs of the Chinese people, and that is how it will always manipulate it. I'd be a little wary of putting much stock into a currency that was devalued 587% in ONE day (1980), simply on the whim of the government.

    September 29, 2011 at 5:43 am |
  4. Henry

    im not a christian but this is defintley biblical read revalations how it mentions the currency of the world will be 1

    September 29, 2011 at 5:59 am |
  5. A Little Bird

    To those talking about a global single currency: A single global currency would be a bigger disaster than the single European currency!!!

    September 29, 2011 at 6:39 am |
  6. ramin

    ya can't buy oil with renminbi though. so there goes that.

    September 29, 2011 at 6:40 am |
  7. rip strangways

    The US $ was good enough to help Chile after it"s earthquake and
    Venezuela enjoys our money for oil

    September 29, 2011 at 7:54 am |
  8. Marcellus

    If that happens, it will only happen to benefit China and nobody else. Remember that China is not out there to share or collaborate, only to dominate (that's long term strategy). I suggest you to read the history books. So far, we should not forget that China's growth is mainly build on exports to Europe and the USA. The pace at which they are developing is unhealthy and unsustainable, therefore the RMB is not a good world currency (nor the dollar or the euro). More importantly, China is not a reliable partner to build on, unless you like to work together with a massive Trojan horse.

    September 29, 2011 at 8:43 am |
  9. bax

    China is an outsourcing destination, that relies on exports to the US and Europe. Its not that they are creating value for the rest of the world to eat from ! Their clocks tick as long the west ticks..

    September 29, 2011 at 9:37 am |
  10. 奥巴牛

    Your American monetary easing policy leading to the international market awash with dollars, so that other country's foreign exchange reserves great depreciation, who do not want their money ( dollar ) depreciation? Of course the choice of RMB

    September 29, 2011 at 11:02 am |
  11. Big_Kev

    Kyle H. Davis – You do realize this is the year 2011? Why would you compare to an event that took place in 1980??? That's like saying never trust the Americans with nuclear weapons because they're the only nation on this planet that has used not one, but two atomic bombs on innocent civilians back in the 40's. Come to think of it, why the hell would anyone trust the Americans with such weapons? Who is the 'Axis of Evil' now?

    September 29, 2011 at 11:12 am |
  12. Big_Kev

    There should never be one single global currency. We have seen the kind of disasters that it can bring based on the example being set by the Euro at the moment. When it comes to global outreach, more may be safer. But most importantly, we need to learn never to trust ratings agencies, the media, large corporations and politicians. Why?
    Because ratings agencies announce their grading based on the level of their investment intentions, large corporations and the media work together like bread and butter, and when politicians promise change, the only change they're referring to is their bank balance and their future retirement nest egg. Trusting your instincts, your researched facts, your balanced views on world events and your close loved ones are the only things we have to keep us going. Other than that, we're all screwed, I am afraid.

    September 29, 2011 at 11:56 am |
  13. Kyle H. Davis

    Big_Kev: Well, to make your comparison more factual, it would be as if the US used two bombs a year for the past 60+ years. China dropped the value in 1980, and kept it there for 25 years. Over the past 30 years, China has: The second largest economy, the fastest growing economy, the largest trade surplus, the second largest importer of luxury goods, the largest automotive market, one of the largest forex holders, and has seen its foreign trade grow faster than its GDP.

    Now... with ALL of that growth, what sort of growth have we seen in the trade value of the Yuan? It comes out to a WHOPPING $0.01 a year for the past 30 years.

    Yep... I know very well that it is 2011.

    September 29, 2011 at 12:01 pm |
  14. Kyle H. Davis

    China values its currency solely for an influx of cash through unfair trade practices. The Per-Capita GDP of China is lower than that of Cuba. If the value of the Yuan rises above, or even near that of any of the developed nations, before its Per-Capita GDP, then it would be devastating for China. – And since we are speaking about a nation of 1.3 billion people, the amount of time that will take to bring up that figure (with 50% of China's economic growth coming from foreign trade), could be measured in centuries.

    Therefore, pinning any hopes on the Yuan is simply ignorant. The Yuan depends on other currencies being STRONGER than it to survive. Remove its massive foreign trade scam, and China fails miserably.

    MAYBE, when China starts to work on its internal economy, it MIGHT be a little more stable. However, China is already facing a massive internal economic problem. People speak of the US government's domestic debt, but China's is comparative equal to that of the US. It has massive inflation, housing market about to tumble, no infrastructure development. It's a mess.

    September 29, 2011 at 12:13 pm |
  15. Nancy

    China has changed a lot. Not like "ONE" day country of 1980 and all friendly Chinese will give warm welcome. Chinese're loving to share and do a lot of things for international things. We do not mean to display all they contribute, but just want to be recognized as a country or a people favorable to collaborate. I have no idea of economic analyzing, i just want to let you know China and Chinese. We never do less than other people to help the world. Thank you!

    September 29, 2011 at 12:36 pm |
  16. Hans

    U.S. proposes to fence Canada off ... http://canuckreport.ca

    September 29, 2011 at 1:46 pm |
  17. Kyle H. Davis

    Nancy: We know that. I have been living in China for a decade now. People & Governments are two separate things. Most of what you see here is a criticism of government policies and practices, not against the people of China.

    September 29, 2011 at 2:02 pm |
  18. Paul Johnston, PhD Economics

    ONE GLOBAL CURRENCY IS JUST WHAT THE CRIMINAL LEADERS OF THE WORLD WANT TO CONTROL US ALL!

    September 29, 2011 at 2:55 pm |
  19. comeon

    Kyle H. Davis...thanks for being the MOST sensible person on the discussion thread. I'm sitting here in amusement that people actually think the renminbi can be a legitimate reserve currency. History has shown us time and time and time again, that countries with open economies will dominate the currency market...not going into details as to why. once a currency cannot float freely investors will NOT consider using it as an investment vehicle...again not going into details as to why.

    even more importantly, it is not in China's best interest to become a reserve currency because China is an export driven economy....so when the value of their currency rises their exports are significantly less attractive. since china does NOT have a domestic demand/consumption driven economy, any rise in their currency will increase the cost of goods in China. and chinese workers on slave wages cannot absorb these increases.

    September 29, 2011 at 3:04 pm |
  20. That'snottrue:[

    What comeon and Kyle H. Davis seems to be forgeting is that China is a constantly changing economy, although there is exports. It is turning into a domestic consumer, don't believe me? Well read the economist, there was an article on it. And as for it being the world's reserve currency, the US is currently manipulating it's currency, so a replacement would be welcomed, from any of the BRIC countries. Although to be fair.... Americans seem to care about this way more then the Chinese.....*sigh* why can't you people try to over throw wall street successfully before we get back on this topic, since they are the main reason the slippery slope is happening. And "slave wages"? You do realize that there's the currency ration right? 1 USD = 6 RMB, and the domestic consumtion cost is cheaper.....some people are still stuck in the 1950s, or ealier....

    September 29, 2011 at 3:30 pm |
  21. this

    this is what i think, i owning a tradin company, frankly speaking , Ramibi is very satble and good to invest. USD well.. bankrupcy.. in long term.. USA print the cash from imagenation not base on gold reservation... thats is terrble..
    sooner or later who own that green 'paper' one day, they will find its only function is used in tolier..

    September 29, 2011 at 6:01 pm |
  22. skeptic

    There is a very good reason to hoard the Chinese yuan, it's been forced to appreciate, and may someday be as valuable as the dollar. That alone makes it a good bet.

    September 29, 2011 at 9:12 pm |
  23. Williamb293

    American products like budwieser, Coke, Ford ,Gm. are all produced in Chinese factories by join venture companies half owned by Chinese people. duties can't be raised on them. China's trade war threats have no teeth.
    China only buys thing from america it cannot produce it self, for instance semi conductors, jet engines, and food. China has Huge food inflation and rely on imported food the same way America relies on imported oil. If china puts huge tariff on American food product they will only cause unrest from their citizens that can't afford to eat enough. China will lose this trade war. There is a massive trade imbalance. China has alot to lose. America has alot to gain.

    September 30, 2011 at 12:18 am |
  24. Kyle H. Davis

    That'snottrue:[ – The Chinese economy isn't "constantly changing", it's growing, sure, but its foundation is not changing. It is literally like an episode of the Beverly Hillbillies in China. It's economy is squarely riding on the shoulders of foreign trade (exports), through a one sided trade policy of Yuan manipulation. The US isn't directly manipulating its currency in such a way as to only benefit the US. The US HAS the strongest economy, this is why it is a standard; and any manipulation is done to keep it strong, which benefits all (If it wasn't doing this, do you think China would have locked its Yuan directly below that of the dollar?)

    China's economy is based on sucking as much out of the rest of the world as it can, to feed its own development (which isn't happening). China is caught in its own Catch-22: It has become dependent on foreign trade for half of its economic growth, which results in it being cost effective to stay one step behind, developmentally. But any growth in development would remove the justification for the artificial value of the Yuan.

    I agree with you on the point about salaries, but this goes to prove my point: The Per Capita GDP of China is 48,000元, the Per Capita GDP of the US is about $47,000. An inexpensive car in China – 20,000元, in the US – $20,000. A college education in China – 20,000元/year, in the US – $20,000/year. A 10oz bottle of Coke in China – 1元, in the US – $1. A pack of Chinese cigarettes – 5元, in the US – $5. A pair of Chinese jeans – 50-100元, in the US – 50-$100.

    Chinese made products, in China, are relatively the same prices as their foreign made counterparts in their home nation.

    Looking at things like this, you would have to ask yourself WHY the trade value of the Yuan is so low. Obviously we realize that the income gap between the super rich and the average Chinese is very different. We are, after all, talking about a nation that has yet to go through an agricultural revolution, and in which owning a mule is a sign of wealth for a large percentage of the rural population.

    The influx of money, without a true wish to develop, is quite evident. This is why China is now the second largest importer of luxury goods, while having hundreds of millions living in poverty. This is why China's bottle water industry is one of the fastest growing multi-billion dollar industries, while the nations water system hasn't changed much since the Qing Dynasty.

    Sure, looking at the Yuan at face value, you might really consider it as a contender for a global currency... but looking at what it represents to the nation of origin... it is the worst idea imaginable.

    And when you add on to that the fact that the Chinese government has a local debt of $2 trillion (USD)...

    September 30, 2011 at 12:57 am |
  25. EA Marco Polo

    Possible, it would be, but not soon.

    Reform must be careful and gradual; stable is essential for currency policy

    However, after 2029, Chinese Yuan would be quite important on international trade and foreign reserve.

    September 30, 2011 at 8:20 am |
  26. Thatguy

    I feel like China is a Ponzi scheme, that type of rapid growth is unsustainable, just like the internet boom, and the housing market before

    October 4, 2011 at 2:20 pm |
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