Ever since 2004, China has been looking to have its currency “fully tradable” one day. That day is coming closer as they’re taking more and more steps lately. And right now, the United Kingdom wants to help China's currency take the “next step.”
U.K. Chancellor Osbourne is deepening his relationship with the Hong Kong Monetary Authority (Hong Kong’s central bank) to develop London as the major offshore center in the West for trading the Chinese yuan (also known as the renminbi or RMB).
If this goes through, it will be one more barrier removed to the international trading of the yuan…and it will allow it to finally become a major global currency soon too.
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If London were able to win this “broadened business,” it would be a big win for London and its financial district. Some say that Wall Street could win this business…but honestly, London is the natural place for this. After all, it is the largest trading hub for currencies in the entire world.
To give you an idea of the interest in the yuan, we can look to Hong Kong’s RMB deposits. They’ve blossomed out to about $93 billion worth of deposits just in the last 23 months. (Some estimate this to grow to $1 trillion by 2020.)
The Chinese bond market is growing by leaps and bounds too. So we’re seeing huge interest there as well for yuan-denominated bonds. China's bond market has grown from virtually nothing four years ago to around $31 billion now. Some have said that China's bond market could grow to $1 trillion by 2020 also. So there’s huge potential for growth.
All of this just tells you that the world is looking for an alternative to the dollar and that they’d love to own the yuan once it’s fully tradable. That day is getting closer and closer all the time. Some estimate that this will happen by 2015 while others push it off further until around 2020. I think it could come within the next three to five years myself.
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Once this happens, I believe there could be some huge outflows out of the U.S. dollar (even more than there already is) and the money would run toward the yuan.
Heck, money might even run from the beleaguered euro too for that matter!
China’s population is huge…its growth is huge…and its currency reserves are huge. It seems that no one wants to get on the bad side of China. Hmmm, sounds like how things used to be here in America, doesn’t it?
There’s a long-term power shift happening in our lifetime from the West to the East….from those that haven’t stewarded their economies well to those that have. From those that are in debt, to those that have saved. These trends are causing the power to shift from debtors (America/Europe/Japan) to China/Singapore/Hong Kong.
This is something that we will live to see. It’s going to be great news for China’s yuan, but once again…it’s just one more bad thing for the U.S. dollar. This is why you need to have some exposure to foreign currencies and not have all of your eggs in the “dollar basket.”
Be aware of the signs of the times…and how things are changing. We’re living in a new day. The world my grandfather lived in and the one I’m living in are very different now. He had a strong dollar and great economics backing that dollar. Today, I don’t have that and you don’t either if you’re an American.
Therefore learn to invest in things you’ve never have before, like currencies, because there’s a new “need” that didn’t exist in previous generations that does exist now.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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