From Financial Standard
By Benjamin Ong
February 27, 2014
Whoopsie! No more free Chinese take-aways.
Yeah, yeah, I know … I’m a day late and a yuan short in bringing to you the latest market moving event in the world’s second biggest economy.
And yes, I mentioned short because some speculators might be thinking just that – shorting the Chinese yuan versus the greenback – from here on after the Peoples Bank of China (PBOC) allowed the country’s legal tender to fall by nearly 0.5% in a single day – seems small but it was the biggest fall since November 2010 and followed five straight days of decline.
The news was full of it. The popular “raison d’etre” was that the Chinese central bank wants to warn speculators that they’re not getting their yuan lunches for free no more and/or that it’s introducing currency market volatility in preparation for the expected widening of its yuan trading band from 1% to 2% in the next 2-3 months.
A perfectly rational rationale … but that’s if you’re just looking at the next trading day, week, month or even year.
Methinks China has a longer-term plan than what its latest move suggests. And that plan is to give the greenback a run for its money — or in simple terms, China wants the yuan to become a global currency and/or the next numero uno international reserve currency.
That’s exactly what European Central Bank Executive Board Member Yves Mersch thought – he’s certainly no small beer – when he told the Renminbi Forum in Luxembourg last night that, “…due to the size of China’s economy and its importance in global trade and, potentially, finance, the renminbi might ultimately come to challenge the US dollar”.
This is in response to China’s decision to introduce direct trading between the euro and the yuan in the Shanghai foreign exchange market.
This is the latest footprint in one of many steps China has taken along the way towards challenging the domination of Uncle Sam’s greens.
Two days before, Chancellor of the Exchequer George Osborne revealed that the UK is in “active” negotiations with China to set up a clearing bank in London and that he expects this to be completed in “fairly short order”.
Read the article at: financialstandard.com.au