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Underneath the Radar: Yuan Convertibility
TND Guest Contributor: Paul-Martin Foss |
If you don’t read money and banking news daily, or you haven’t been reading sites like Zerohedge and David Stockman’s Contra Corner, you’re probably not aware of an important monetary undercurrent: the increasing convertibility of the Chinese yuan, or as it’s known officially, the renminbi. The renminbi was begged to the US dollar until 2005, and since then has been allowed to float within a narrow range. And while it’s still not fully convertible, both the Chinese government and Western governments have been taking steps over the past few years to increase the renminbi’s convertibility.
In late September, direct trading of euros and yuan was announced. A few weeks later, the UK government announced the issuance of its first renminbi-denominated bond. This means that the UK government has now added renminbi to its portfolio of foreign exchange reserves.
Australia is now hoping to become a hub for yuan trading, as it seeks to become less dependent on the US dollar for its trade with China. Rather than trading Australian dollars for American dollars and those American dollars for renminbi, Australian companies will soon be able to cut out the US middleman and trade Australian dollars directly for renminbi. And the South Korean central bank will also soon begin direct exchanges between renminbi and won.
Although the yuan is still not a heavily-traded currency, all these agreements are laying the groundwork for the international monetary system to decrease its reliance on the US dollar and to move away from the dollar as the world’s reserve currency. As the dollar continues its fall from grace, we may see an interregnum period, a multipolar monetary system in which no one currency dominates, and in which direct bilateral exchanges are name of the game. But in all likelihood there will eventually be a new world reserve currency. The dollar will be fully replaced in its role as the world’s reserve currency and it may very well be the yuan which ends up supplanting it.
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About Paul-Martin Foss:
Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.
Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.
As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.
Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.
This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”
Source: http://thenewsdoctors.com/underneath-the-radar-yuan-convertibility/
