Global yuan exchange under way for first time in history

Front view of a Chinese one yuan note. The late Communist leader Mao Tse Tung is depicted on the currency.

The yuan is now a commodity for global exchange. (Photo Credit: CC BY/Jason Wesley Upton/Flickr)

China has played its hand very close to the vest when it comes to controlling its currency, but as the Wall Street Journal reports, the time has come to spread the wealth. The yuan, which Beijing once prohibited from being bought or sold outside China’s borders, has been released into global currency trading for the first time. Considering China’s position as a world economic power, interest in yuan exchange has been tremendous.

Yuan exchange: from zero to $400 million

Daily yuan trading quickly accelerated from zero to $400 million, according to reports. As China has loosened the reins on its currency, other nations are now able to transact with China in yuan for the first time, whether it be in finance trade, investment or borrowing. While the value of the yuan is still under tight control – China believes this will keep the currency from fluctuating as wildly as the dollar and euro – the availability of the yuan worldwide could change the face of world business, writes the Wall Street Journal. And demand for the yuan is already extremely high.

‘Full convertibility of the yuan’

Norman Chan, head of Hong Kong’s central bank, told the WSJ that “This is a step moving to full convertibility of the yuan … a major change of the international financial landscape.”

While the dollar, yen and euro currently dominate the $4 trillion global currency market, the yuan is fast-approaching critical mass, according to traders. Chinese companies bank their yuan in Hong Kong accounts – where offshore trading is permitted – in tremendous amounts. By year’s end, experts predict that 300 billion yuan ($45 billion) will be ready for convertibility.

How yuan trading works

Global currency trading in yuan will require traders to have a Hong Kong bank account. Chinese companies will be allowed to move yuan offshore for business purposes like exports and imports. Once the yuan is in an offshore account, the holder of the account can use the currency as they please.

As banks like Citigroup and HSBC are already offering investors yuan-priced options and companies like McDonald’s and Caterpillar are selling debt priced in yuan, it is clear that yuan exchange won’t be slowing down any time soon.


Wall Street Journal

Just when inflation was going so well…

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