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jimmy67 (jimmy67)
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Are Asian central banks using RMB as reserves now?

Somebody said: The Russian Reuble is on the rise. China's Yuan (RMB) is on the rise. The U.S. Dollar is on the Down-ward slide, and it will continue to slide until a gabage-bag full will only exchange you for a bag of bread.

The U.S. debt is already 3 Trillion U.S. dollars; they will never repay that Debt; practically, the U.S. is now bankrupt !

Many Asian Central Banks are using RMB as reserves.

Why the bloody-hell Hong Kong Dollar is still pegged to the U.S. Dollar ?

Any Comments on this ?

2007-1-12 09:00 AM

hanlei (Magic)
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thanks, I agree to the rising value and buying power of RMB

If resources such as crude oil, iron ore, uranium etc are priced in USD (which they are now), then the RMB will buy more resources per RMB, as it is gaining value.

2007-1-12 09:18 AM

basket (basketss)
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US dollar keeps depreciating

The US keeps depreciating its currency while pressing China and other countries to raise the value of their currency. Why? Because by doing so, the US is actually downsizing their debt to other countries.

2007-1-12 09:28 AM

catbird
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HK will not choose to drop USD peg until RMB becomes fully convertible.

Besides, USD's depreciation just relatives to some certain currencies, considering US's ecnomic power, USD is still the stablest currency and the best choice as foreign reserves.

[ Last edited by catbird at 2007-1-12 10:19 AM ]

2007-1-12 10:03 AM

heywilma
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A couple of points of interest:

- RMB overtook HKD for the first time in 13 years. Last time I checked it was 1:0.997. (Though HKD is still slightly more expensive in practical exchange because of processing chrages.)
- RMB is at an all time high against USD, 1:7.8 - first time ever.

Yes, RMB is appreciating while USD is taking the other road. Yes, RMB is quite likely to become a hard currency in a few years' time. But despite all this, like catbird said, the US is quite economically stable, and still the world's largest economic power, and will probably be staying there for many more years to come. It's going to take a while for the country to become bankrupt, if ever.

2007-1-12 12:56 PM

chinadaily (chinadaily)
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at present and seems in the foreseeable future

that foreign governments taking in RMB as their reserves will prove to be a feasible & wise decision, because as its value keeps rising, your storage of it will gain you more. And, personally I assume more storage of RMB, once become convertible, could help a government stablize its financial market.

2007-1-12 01:46 PM

zinc06
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Completely wrong

"Many Asian Central Banks are using RMB as reserves"
Where does this information come from? RMB is not fully convertible. It is still too dangerous to use RMB as a forex reserve storage vehicle. What does "inconvertible" mean? It means today you buy a house at 1 million yuan. It's possible that tomorrow you can't buy a coke with the same amount, depending on the monetary policy the central bank takes out. What does "fully convertible" mean? It means that a single contry can't manipulate its own currency by itself. Who dare to use RMB as forex researve now? In the future, only after when it is fully convertible, maybe there are some countries.

"practically, the U.S. is now bankrupt !"
No! Countries using foreign currencies as reserves are not looking at the foreign country's actual balance sheet. They are using the expectation over the country's solvency and future earnings. It is naive to draw this conclusion. As long as people believe that the US is ABLE to pay the debt, they will keep on lending to the US (by buying US T-bonds etc) and holding US dollars as reserves. It is an indeed rational act.

In addition, the prices of RMB (the exchange rate of yuan against other currencies) does not mean how weathly China is. It only reflects the supply and demand relation of the currency. Each unit of Japnese yen or Korean won is worthless compared with yuan, but you can't say Japan and Korean's economies are worse than the Chinese one.

Also, I'd like to remind the too "optimistic" ones that it is GDP PER CAPITA rather than aggregate GDP that reflects the national economic strength. Altough our great nation now ranks No 4 in the world in absolute GDP figures, there is still a long way to go before we truely become an "advanced" economy. By reminding ourselves this, we could keep in mind the gap and take out more efforts for the country and ourselves.

So why "the bloody hell" shoudl HK untie pegging to the US dollar and divert to RMB, at present at least?

[ Last edited by zinc06 at 2007-1-12 03:13 PM ]

2007-1-12 02:18 PM

hanlei (Magic)
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dear moderator zinc06

While at present US is still "solvent", but if Bush keeps sending more troops to Iraq, it could mean trouble.

2007-1-12 02:25 PM

annali
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I don't think Asian central banks are now using RMB as reserve. But there's the possibility in the future. With China's economy growing so quickly, the yuan keeps going strong. Falling dollar no longer delivers the kind of security countries need as the yuan does.

The US economy is slowing and will keep the down-ward trend in the coming years. However, the boom it has achieved in the past decade can sustain the country's everyday life for a period of time. It won't go bankrupt at least for now.

2007-1-12 02:27 PM

polaris1120
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It is a proof that China becomes much stronger maybe in the future all countries use RMB as reserves.

2007-1-12 02:29 PM

#10

eric7321005
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certainly it will!

renminbi will become more valuable and widely accepted, HK sar will turn its back on US dollars, and Asia, at least east Asia will take renminbi the absolutely leading currency.

but it needs time, though. actually I sincerely believe anything could happen within maybe ten years.

although Hong Kong Chief Donald Tsang said the sar would not disconnect with dollars untill 2047, anything could happen.

how could Hong KOng stick to the depreciatory currency when another economic power to which HK's economy is tightly connected emerges. it will be marginalized in the region.

2007-1-12 02:34 PM

#11

zinc06
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Solvency remains until psychological bottom line is broken

QUOTE:

Originally posted by hanlei at 2007-1-12 14:25
While at present US is still "solvent", but if Bush keeps sending more troops to Iraq, it could mean trouble.

Bush simply defers payment to his successors, just like his predecessors did. His followers could do the same as well. The time horrizon is infinete: you can always defer payment to later peroids, as long as one condition holds: people believe you can pay back. Then, when will US go bankrupt? -- When its economy, pushed forward by its technological competitiveness, go deep, deep down enough to convince people that they can't afford today's spending. When will that happen? I don't know.

What I want to say is: actual conditions matter less than EXPECTATION, which is, in fact, the spirit of economics and statistical studies.

[ Last edited by zinc06 at 2007-1-12 02:59 PM ]

2007-1-12 02:34 PM

#12

annali
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2007-1-12 02:37 PM

#13

hanlei (Magic)
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dear moderator zinc06:

I agree with you that Psychological Expectations sometimes do count more, than numbers on the paper. US remains "solvent" today because countries, such as Japan, China, Saudi Arabia, etc, continues to buy US government debts, (maybe they still thinks USA is the world's largest economy, and its dollar reamains a not-bad hard currency). But, if the U.S. government keeps borrowing from abroad, and keeps spending like there is no tomorrow, other debtor countries will gradually change mind, and may think U.S. dollars are not as good as say, the Euro, they will stop buying US debts. then US will be trully having trouble.

Also, I deem U.S. government's coersion for China to precipitate RMB value may back-fire one day. When China's central bank decides to wholesale its US dollar reserve, if one day, what will that cause?

2007-1-12 02:59 PM

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szfullymax
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QUOTE:

Originally posted by chinadaily at 2007-1-12 13:46
that foreign governments taking in RMB as their reserves will prove to be a feasible & wise decision, because as its value keeps rising, your storage of it will gain you more. And, personal ...

I agree with you!

2007-1-12 03:32 PM

#15

zinc06
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Dear hanlei

Yes, I agree with you.But we have several basic differences upon the understanding of the concepts of expectation and solvency.

"But, if the U.S. government keeps borrowing from abroad, and keeps spending like there is no tomorrow". In fact, US is not spending like "there is no future". It is doing so right because it believes it has an affluent, bright future. Only because it is confident enough to pay back, could the country shoulder on so many debts, although nobody doubts it's bad to the US, including Bush himself.  And yes, Bush might be a retard, but his cabinet, think tanks, wealthy sponsors ... are not.

Second, "other debtor countries will gradually change mind,  and may think U.S. dollars are not as good as say. ", yes, US dollar is depreciating. But like I said before, the absolute value of each unit of currency is nothing but a figure game. As long as dollar is easy to convert, as long as you can exchange it with gold, oil, and other goods, it is still a storage of value and means of transaction. It is back on to the psychological belief by people over the dollar. No matter how cheap it is, as long as it can be used to buy goods instantly, it is a good choice for forex reserve.

Third, I totally agree with your condemination on US' coersion over RMB appreciation. It would be a disaster if yuan rises dramatically in no time. About the central bank wholeselling its US dollar reserve, don't worry. It won't do so, as long as the dollar has the functions I mentioned above. There won't be such day that the People's Bank of China sells out its dollar reserve in one day, one month or even one year.

[ Last edited by zinc06 at 2007-1-12 03:54 PM ]

2007-1-12 03:34 PM

#16

ushership
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The yuan has not well prepared to be accepted as a universal currency, just as the US dollar. When it can "grasp its own fate" and "delevelp in its own pace", the yuan can be used as reserves!

The Chinese currency is gaining weight definitely! Authough Central Bank boss Zhou Xiaochun has vowed in his oftly-used language that China will stick to the prudent monetary police, letting the market play a more bigger and active role and making the yuan a bit flexible. The gains in yuan's value has proved the mounting pressure facing China from the US and other western countries. Not the yuan shows its fexibility, but the Chinese banking officials, in my point of view.

Apart from its constant gains in its value, how the currency's strong performance affect our daily touches on my nerves. Can China's vast crowd of working class cope with the inflation brought about by yuan's gains? Will the government encounter a twinge of criticism?That is the question China should be faced with in the future.!

HK dollars belongs to Hong Kong, which had not been included in the mainland's domain for centuries. Inmy mind, Hk dollars must be in the hands of HK officals and should not follow the mainland currency's suit.

2007-1-12 04:02 PM

#17

zinc06
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Agree with the above!

Agree with the above, ushership's first post. : )

Those who say China/HK should abundon US dollars as reserves, ask yourselves what is the ultimate purpose of storing up foreign currencies. The answer is: to prepare for unprecedented incidents that may harm the national economy.

What are the three factors that need to be addressed over each piece of investment?  Safety, liquidty and profitability. In most cases, when safety is higher, profitability is lower and vice versa. Then in which sequence should forex reserve focus on the three? It's safety first, liquidity second and profitability last, I firmly believe so.

Because the reserves are stored to prepare for such disasters like Asian financial crisis, to compensate depositors when the Industrial and Commercial Bank of China is suddenly bankrupt, to buy strategic resources when Iraq can't supply China oil... Safety and liquidity overweigh profitability.

Yes, dollar's value is declining. Yes, it gets lower return from keeping it at hand. -- US dollar has lower profitability
But could US dollars be destroyed over-night? No. Even if your assumption of insolvency is valid, it won't become worthless in a couple of years. -- US dollar is comparatively safe.
The dollar still prevails as the most popular transaction utensil accepted by almost every country of the globe. And no other rising regional currency is as convenient and fast exchangible as the dollar.  -- US dollar is comparetively highly liquid.

We have to compromise then.  Because of the unique purposes of holding foreign currencies as researves, it is apparent that safety and liquidity are top priorities. That is exatly why the central bank is still reluctant to divert from holding the largest proportion of US dollars as reserves to other currencies.

Finally, about other countries using RMB as forex reserves. RMB is not fully convertible - low liquidity; RMB exchange rate is not solely decided by market forces - low safety; RMB is appreciating - high profitablity.
Compromise again. Dare you use RMB as forex reserve now, before it is fully convertible, if you are the decision-marker of a country?

[ Last edited by zinc06 at 2007-1-12 05:31 PM ]

2007-1-12 04:52 PM

#18

hanlei (Magic)
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looking to the future

It will take some years before RMB bebomes fully convertible. But please ask elite money market analysts and managers, they will tell you that expectations are high for RMB to become a very "safe", "liquid" and "lucrative" hard currency, and that day's coming won't be long. I see those central bankers now starting to store RMBs as a far-sighted and clever move.

2007-1-13 09:59 AM

#19

ogbrain_ou (ogbrain_ou)
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How can I benefit from RMB appreciation

As a citizen of china, how can benefit from RMB appreciation? Chinese economy is blooming as reported on all papers, but why is my life still hard?

2007-1-13 03:04 PM

#20

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