Submitted by: Donald Hank
Warning from
top Chinese monetary policy maker
My translation
of a report in Economic Daily (Jingji Ribao) on the July 20, 2014 interview with
Chen Yulu re. RMB internationalization follows below.
Note:
RMB is the acronym for China’s national currency, the renminbi, also known as
the yuan. Renmin means “the People” in Chinese, while “bi” means currency —
hence, the People’s currency.
Background:
As of 2013, the RMB has been convertible in current accounts (but not capital
accounts). Until then, if you wanted to convert the RMB into one of the
non-dollar currencies, you generally had to first convert your RMB into dollars,
a cumbersome process that discouraged investors from making many transactions.
Why I decided
to translate this article:
I first found
this article in a Japanese language translation and decided to find the
original, linked below.
Not at all
surprisingly, I found no translation of it into English anywhere (except for an
atrocious machine rendition that does not merit the descriptor “translation”).
Why no surprise? I had already had experience with the huge black holes in the
Western financial press, as reported here (the term “dedollarization” in that report is
for all intents and purposes synonymous with “RMB internationalization”as used
hereinbelow).
Why this
article was not run in the Western press:
While many of
the facts cited by Mr. Chen are to be found in the Western press and also in
English language articles posted in China (for example, by the Bank of China),
the time frames of Mr. Chen’s predictions of the RMB’s internationalization
growth differ shockingly even from those reported in Chinese publications posted
in English. Obviously, the Chinese don’t dare tell us the truth and I can't
blame them.
Mr. Chen tells
his Asian audience that the RMB internationalization index (RII) will exceed
that of all currencies except the US dollar and the euro within
anywhere from 3 to 5 years, whereas other forecasts in English language
journals estimate that time frame at 15
or more years.
The
World Bank had
estimated in 2013 that China’s economy “will become the [world’s] largest by 2030.”
Well, that happened last week. Can you see that we are being
kept in the dark? (In my opinion, lying to the public like this is criminal
because you leave people helpless with nowhere to turn
to).
This
article was translated by an ordinary citizen (who happens to be a professional
translator) free of charge, for both investors and ordinary middle class
citizens who will need to be prepared for a collapse of the dollar sooner than
most would expect, at least if we trust the media that are being paid good money
to prepare us but refuse to do so.
Finally,
while Mr. Chen says the RMB is not intended to challenge the dollar, now that
the Chinese economy exceeds ours, guess what will happen to the dollar once the
RMB internationalization index surpasses the dollar’s.
Hint:
the main ingredient in the value of any currency is trust. Western monetary
policy aims at 2% annual inflation and cheekily calls that “stabilization,”
routinely causes bubbles in various markets and fosters the creation of
essentially worthless derivatives denominated in the US dollar. Chinese policy
has, so far at least, not fallen into anything resembling this kind of
irresponsible behavior. European markets were hit hard by this corrupt US
monetary policy and they are not happy. This is, in my judgment, why the RMB
clearing centers have been established all over Europe (as well
as elsewhere) but not in the US, whose
investors apparently want to go down with their own ship.
I
am convinced that all or most of our allies have lost all trust in the US
government and are quietly deserting the ship.
My
only question is: what took them so long?
Don
Hank
Author’s email:
zoilandon@msn.com
Internationalization
of the RMB is not a challenge to other currencies
05:40,
July 22, 2014 Economic Daily, I have
something to say (11 participants)
Staff
reporter: Zhang Wei Zhang Lichen
On
July 20, the Renmin University of China issued the “2014 Renminbi (6.1546,
0.0044, 0.07%) internationalization report,” which shows that in 2013 the rmb
internationalization index (RII) further accelerated. The report notes that the
internationalization of the RMB is not intended to challenge the US dollar or
other international currencies; the renminbi is taking on more international
monetary functions, rooted in the internal demands of the international
market.
Since
the beginning of 2012, the People's [Renmin] University of China has been
releasing a series of annual research reports on the internationalization of the
RMB, and has proposed an RMB internationalization Index (RII), which objectively
describes of the extent of Chinese yuan use in overall international economic
activities. The index not only tracks trends in 3 areas, namely, global
renminbi-denominated trade, financial transactions and foreign exchange
reserves, but enables a convenient horizontal comparison with other major
international currencies. On July 20, upon release of the “2014 RMB
internationalization Report,” Economic
Daily reporters on issues relating to the internationalization of the RMB
were granted an exclusive interview with Chen Yulu, a member of the Central bank
Monetary Policy Committee and president of Renmin University of
China.
According to
data in a recently released report, by the end of 2013, the RII reached 1.69, as
compared to 0.92 at the beginning of the year, a gain of 84%. What is the reason
for this rapid growth?
Chen
Yulu:
The RMB internationalization Index (RII) accelerated further in 2012, due to
high-growth, reaching 1.69 by the end of 2013. In contrast, over the same period
the international status of the dollar remained stable, while the euro, and
British pound rose only moderately, and the internationalization of the yen
declined slightly.
This
is because China is number one in global trade, and currently has the world's
second largest FDI (Foreign Direct Investment) inflows and the third largest
direct investment outflows. In cross-border trade, more and more companies are
using RMB settlement. In 2013 the share of trade in goods settled in RMB
exceeded 10%. In terms of investment, foreign direct investment in RMB 448.13
was billion while overseas direct investment amounted to 85.61 billion RMB, the
total reached 1.9 times over the same period last year. This is the main reason
for the rapid growth in the RII.
According
to the latest data, in 2014, the first and second quarter RII’s were 1.74 and
1.96, respectively. By the end of this year, based on a conservative estimate,
the RII is expected to climb to 2.40. Following system reform and the release of
dividend policy, RMB direct investment and credit in international markets will
significantly increase. If the BRICS Development Bank and the China
Latin America Cooperation Forum proceed smoothly, an optimistic forecast for the
RII by the end of 2014 might be in excess of three. Barring any major adverse
events, the international use of the renminbi will exceed the levels of the yen
and the British pound in anywhere from 3 to 5 years, with the RMB becoming the
world’s third largest currency after the dollar and the
euro.
The accelerated
process of RMB internationalization seems to suggest a challenge to the status
of dollar, the euro and other international currencies. What do you
think?
Chen
Yulu:
The internationalization of the RMB is not going to challenge the dollar or
other international currencies. In fact, the RMB is assuming more international
monetary functions as a result of internal demand in the international market.
In particular, the international financial crisis in 2008 demonstrated that
there are significant contradictions in the current international monetary and
financial landscape. For example, the United States accounts for 20% of the
global total economy, but supplies 52% of international currency as a public
good. The spirit is willing but the flesh is weak. In the last two years, a
number of international financial centers in Europe have been actively showing
intensive demand for RMB-traded products, and have signed RMB clearing
agreements with China. This shows that the RMB internationalization is a
phenomenon that has developed in response to adjustments in international
economic and trade patterns, with the chief motivation coming from international
market demand. China's push can be seen as an echo of this
demand.
Secondly,
China has become the world's second largest economy, and this entails a greater
responsibility and obligation to provide global public goods, including the
response to the global liquidity shortage. Thus it has become the lender of last
resort, participating in global currency market rate pricing, establishment of a
stable international currency exchange rates system and so on. Due to China's
own increased economic strength, this is the default option for creating a
stable monetary and financial environment for global economic
development.
We
also need to note that the yuan is far from becoming a core international
currency, and does not pose a threat to the status of the dollar or the euro.
Therefore, we need to consider the larger pattern and see the
internationalization of the RMB as a natural response to adjustments in the
international economic and financial situation, without assigning it too many
other interpretations.
Currently, the
establishment of offshore markets is the main thrust of the RMB
internationalization process. Can you give us an overview of the global offshore
RMB market? How will it impact the development of Chinese enterprises and
financial institutions
Chen
Yulu:
Hong Kong is still the world's largest offshore yuan market, where we find not
only the most important clearing platform of cross-border trade in RMB, but also
the largest pool of offshore renminbi funds. The central government has
expressed clear support for entering a new stage of domestic development
following the construction of offshore financial centers in Hong Kong. Elsewhere
in Asia, in addition to Singapore and Taiwan and Macau, Seoul has followed suit
with the signing of an RMB clearing agreement.
A
number of international financial centers in Europe, such as London, Frankfurt,
Luxembourg, Paris and Zurich are actively expressing the desire to establish
offshore financial centers. This year, China signed RMB clearing agreements with
Germany, Britain, France, Luxembourg and other countries. This is likely to
cause a reversal, with the size of the European market lagging significantly
behind Asia. In addition, almost all international financial centers are being
established on fears of falling behind in the offshore renminbi business. This
means that in addition to Asian high yield and European new markets, the RMB
offshore market development will be a fast-growing trend in the global
situation.
From
a domestic perspective, the offshore market provides domestic enterprises new
financing channels, and allows companies to take advantage of low-cost funds in
overseas markets, solving difficult financing problems; at the same time, it
also provides a financing platform for enterprises “going offshore,” and is
conducive to fostering international competitiveness in local multinational
companies. In addition, the offshore market can encourage Chinese financial
institutions to accept otherwise-daunting international competition, improve
service levels and innovation capacity as quickly as possible, and for China’s
benefit, create favorable conditions for carrying forward capital account
reform.
What challenges
is the establishment of current offshore yuan markets
facing?
Chen
Yulu:
Right. Although the establishment
of offshore renminbi markets is accelerating, some of the main obstacles must be
overcome as quickly as possible. First, we lack an efficient, secure and
cost-effective offshore renminbi clearing system. This affects the willingness
of domestic and foreign enterprises and financial institutions to use the
renminbi and restricts the scope of offshore renminbi transactions. We need to
set up a global offshore RMB clearing system of international scope as soon as
possible, transforming it into a gross settlement system functioning in real
time corresponding to the operating time.
Second,
the current legal framework for offshore RMB market system has not yet been
established. The establishment of the offshore RMB market must tackle conflicts
in the field of international law, improving as soon as possible the terms of
confidentiality, and implementing strict anti-money laundering procedures to
curb the use of offshore financial centers to achieve illicit transfer of funds
abroad. We also need to strengthen tax collection of international taxes on
Chinese territory, to combat tax evasion and prevent loss of tax
revenue.
Third,
the offshore renminbi financial product chain and financial service capabilities
of financial institutions are not yet ideal. The offshore business of Chinese
financial institutions in general is still restricted to the traditional
deposits, loans and international settlement business. There is an urgent need
to achieve breakthrough innovation in financial product development. In addition
to requiring more Chinese financial institutions to take on added functions, we
must also encourage foreign financial institutions to develop businesses and
innovative products.
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