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Page added on June 4, 2014
Renminbi use surges in home of US dollar
It is the monetary equivalent of what Chairman Mao called “bombarding the headquarters”. China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market.
The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm.
The reasons driving the upsurge are structural and long-term, said Debra Lodge, a managing director at HSBC in New York.
First, US importers can slash the cost of imports from China by agreeing to trade in renminbi rather than US dollars, Lodge said. Second, a recent surge in the popularity of a host of renminbi-denominated financial market instruments are making it easier for US corporates both to hedge currency risk and to earn an investment return from the renminbi they hold.
As the chart above shows, the absolute size of renminbi settlement between the US and China is far less impressive than the growth rate. Just 2.4 per cent of payments between the US and China/Hong Kong were settled in renminbi in April this year, up from 0.7 per cent in April 2013.
However, this is set to change in an emphatic way. “By the end of 2015, we think that 30 per cent of (China’s) global trade will be settled in renminbi, up from 13 to 15 per cent now,” said Lodge.
Until now, large Chinese companies have been driving much of the switch from the greenback to the redback, but this is changing. “I think over the next two years we are going to see a much greater uptake from small and medium enterprises in China using renminbi (for trade with the US),” Lodge said.
This shift, Lodge says, is partly prompted by the recent depreciation of the renminbi, which has lost 3.2 per cent against the US dollar so far this year. Previously, when renminbi appreciation was regarded as a one-way bet, Chinese exporters had a habit of transferring their foreign exchange risk to US importers by insisting on a lower dollar value.
Thus if the prevailing official exchange rate was around Rmb6 to the US dollar, US importers would often have to agree to contracts that valued the Chinese currency at Rmb5.8, making Chinese imports more expensive, Lodge said. But after switching to renminbi-denominated trade, US importers no longer have to pay an exchange rate premium to Chinese exporters.
For Chinese exporters, a shift to the renminbi eliminates exchange rate risk and is therefore popular, Lodge said. US importers, meanwhile, can hedge their currency exposure in an increasingly liquid offshore market for renminbi financial instruments.
Such instruments include renminbi forwards, foreign exchange swaps, offshore renminbi options and “dim sum” bonds. The yield on the 10-year Chinese government dim sum bond, for instance, is currently at 4.00 per cent, offering a premium to the equivalent US treasury bond. Meanwhile, a dim sum bond issued by Caterpillar, the US machinery company, is trading at a yield of 2.95 per cent for 2016 maturity.
Although the shift from greenback to redback is animated by commercial considerations, it also carries a strategic resonance. China’s promotion of the renminbi internationally was impelled by the frustration Beijing felt in 2008 and 2009 as it watched the value of its vast US treasury holdings plunge along with the dollar’s value.
But the ongoing substitution of US dollar export earnings for renminbi earnings is helping to wean Beijing off its reliance on US debt markets. Over time, this is set to free China by degrees from its uncomfortable inclusion in the US dollar zone and boost its financial independence.
27 Comments on "Renminbi use surges in home of US dollar"
Dsn on Wed, 4th Jun 2014 8:49 pm
Holyshit
Plantagenet on Wed, 4th Jun 2014 9:41 pm
Who wants to hold US dollars. The huge US debt and FED QE money printing are causing the dollar to lose value.
Much better to trade in a currency that will maintain its value.
DMyers on Wed, 4th Jun 2014 9:44 pm
Doesn’t it seem like we walked right into this? Although Khrushchev’s promise to bury America was never fulfilled, it looks like someone was going to bury America, and it turned out to be China.
Makati1 on Wed, 4th Jun 2014 10:33 pm
DMyers, you are half correct. It is China AND Russia, and others, that are pulling the junkyard dog’s USD teeth. The trend will accelerate as corporations are not patriotic and will switch currencies/countries if it increases profit.
I personally switch my USD income to Philippine Pesos as soon as I can after I receive it. I fully expect a bank holiday in the US where they ‘nationalize’ bank accounts and restrict withdraws within the next few years.
I also hold some other Asian currencies of the countries I visit occasionally. My basket contains yuan (China), yen(Japan), Hong Kong dollars, Singapore dollars, Durhams(UAE), Ringgits (Malaysia), rupee (India), etc. Not a lot of each, but a cushion if I need to travel, and easily exchanged for the one I may need.
Northwest Resident on Wed, 4th Jun 2014 10:43 pm
In the meantime, on ZeroHedge:
China Scrambling After “Discovering” Thousands Of Tons Of Rehypothecated Copper, Aluminum Missing
China Composite PMI Employment Drops At Fastest Pace Since Feb 2009
I doubt that China’s currency will ever replace any significant percent of the dollar in international transactions. It is a constant meme being pumped through doomer-related media channels, always threatening, never materializing. But it might! Not likely, but possible I suppose. Either way, it doesn’t matter. Like the saying goes, when America sneezes the rest of the world catches a cold. And when America’s economy hits the skids, the shock will be equally felt around the world. People thinking that China is going to drop the dollar and sail off into a bright financial future where everybody is now trading in Renminbi probably just haven’t thought the subject all the way through to its logical conclusion.
bob on Wed, 4th Jun 2014 10:58 pm
When I read a story like this and then I read responses….it puts a lot of people’s intelligence in perspective. I used to give a lot of weight to comments on here now I am seeing that a lot of times you just write without thinking….you will bite any fish that swims buy as long as it has the story you want to hear….dumb asses….
DMyers on Wed, 4th Jun 2014 11:00 pm
The US is debt ridden beyond our wildest dreams. China may try but will never catch up. Thus, a rational mind wonders how US continues to exist, economically. China could easily take up the vacuum of the dollar. America is a has been. The old “when America sneezes” is now a remnant of failure.
DMyers on Wed, 4th Jun 2014 11:14 pm
Bob, if you don’t like what you see here, don’t read it. That is the simplest way to avoid any perturbation caused by dumb asses.
Northwest Resident on Wed, 4th Jun 2014 11:22 pm
But who are the real dumb asses posting on this forum. That’s the question.
DMyers on Wed, 4th Jun 2014 11:34 pm
I certainly want to claim that distinction, myself. In fact, I’m a dumb ass from Hell, the worst kind. And I have a terminal degree from a university with a basketball team.
Perk Earl on Thu, 5th Jun 2014 12:05 am
How much of this has to do with China’s ongoing accumulation/stockpiling of massive amounts of gold? Maybe faith in the top dog currency is shifting.
GregT on Thu, 5th Jun 2014 12:12 am
I smell a smurf.
Davy, Hermann, MO on Thu, 5th Jun 2014 1:23 am
I have to laugh at the usual America is done and China is moving in. Come on folks do you all read the financial news about China? In the same breath you speak about FED QE but fail to recognize a Chinese Ponzi debt economy. Worse, A Chinese Casino Ponzi debt economy now turning to corruption, manipulation, and theft that would make Americans blush! Worse than that, a Chinese economy at limits of growth because of massive overshoot of carrying capacity in relation to food, energy, and resulting pollution. A country in massive population overshoot PERIOD. A country in political turmoil because of the worst wealth inequality of any large nation on earth. A country that is export driven facing a world of significant export reductions in a sputtering global economy. A country with 20 years of investment in ghost cities, heavy industry overcapacity, and huge environmentally damaging reengineering projects (EXAMPLE North/South water diversion). Take this a step further in the region of East Asia that is a mirror of China and emulating and following a failed financial, economic, and cultural path. East Asia is the nail in the coffin of the global system and the world ecosystem. The developed west started this absurdity but the Asian’s will finish it. China is a dead man walking. No words of praise for the US or the rest of the developed West but please donT shove the Asian tiger shit down my throat because I will spit it back in your face.
Makati1 on Thu, 5th Jun 2014 4:37 am
A bit off topic, but…
“Power and the Global Ruling Class. Who Rules the World?”
http://www.globalresearch.ca/power-and-the-global-ruling-class-who-rules-the-world/5385221
“… We also find a global power hierarchy among nation-states. To paraphrase what was said above of the attitudes of members of the ruling class: The most powerful nation will tend to see itself as being of divine superiority placing it far above all other nations. Fascism is very likely to be a basic pillar of its ideology, and war will be just one of the tools to increase its power and profits.
“According to this self-righteous doctrine [of US exceptionalism], America is the indispensable country. What this means is that the US has been chosen by history to establish the hegemony of secular ‘democratic capitalism’ over the world. The primacy of this goal places the US government above traditional morality and above all law, both its own and international” (Roberts, P.C., 2013).
The claim to the role of world hegemon is having a high price (Nader, R., 2014). Socio-economic polarization increased sharply. Hundreds of thousands of families have been driven out of their homes by foreclosures. Some twenty per cent of all households are on food stamps. Increasing numbers of households can no longer pay their rents, let alone care for retirement; thousands live in shanty towns and tent cities. Some city governments have begun to drive the poor out of the downtown areas so they become more and more invisible [2]. While the trend is general, women, children and non-whites are especially affected. The consequences in form of reduced health care and increasing mortality rates have often been reported [3]. A baby born today in the U.S., when it takes its first breath of air, it is $50,000 in debt (Ventura, J., 2013). The prison industry profits from a policy of incarceration which does not even stop short of lifelong sentences to children. …”
Enjoy!
Makati1 on Thu, 5th Jun 2014 4:51 am
Give em hell, Davy, then look around the US and see the 3rd world staring back at you from the collapsing cities and the slums of America. Believe me they exist and are spreading like the flu.
After all, it’s just a game played by the top 0.00001% called ‘Kings and Serfs’. So, where in the world you now live is not important as ALL countries will be leveled to the same three classes soon. The top elite. Their support staff, and the serfs (you and I). It’s just that some have farther to fall.
I’ve already moved my lifestyle into the 2nd world, working my way to the 3rd and bringing along as much happiness to the rest of my life as I can. I own nothing I cannot walk away from anytime if it is necessary. That is liberating and true freedom. What I had in the US was lifelong servitude. A slave without a visible collar, but a slave none the less.
simonr on Thu, 5th Jun 2014 6:54 am
The reason the BRIC economies are alive and doing well is essentially the same reason that the USA is still at the top (and will probably stay there), it is paradoxically the same reason that many here give to show the decline of the USA, and this is.
These societies advance at the speed of the fastest, and woe betide the slowest
Davy, Hermann, MO on Thu, 5th Jun 2014 7:22 am
No arguments Mak but the third world has always been a part of the US with different regions and the usual wealth inequality. It is getting worse and has been for the bottom class ever since the DC mafia, corporates like Walmart, and the banksters decided to take globalism to a new level there by outsourcing and exporting jobs overseas. This was done to the benefit of the rich.
The problem you made Mak is you moved to a country in extreme ecological and population overshoot that was already poor. This country is set to be the least prepared and most vulnerable to climate change. Not only that Mak, you moved to a mega city full of slums and desperate people. When the worst of the decent happens (decent is now) you will be hungry, without support, and surrounded by angry people. Sorry Mak, big mistake.
Davy, Hermann, MO on Thu, 5th Jun 2014 7:23 am
Great analysis and agreed simon.
societies advance at the speed of the fastest, and woe betide the slowest
Davy, Hermann, MO on Thu, 5th Jun 2014 7:34 am
“Europe’s “Monetary Twilight Zone” Neutron Bomb: NIRP.” Folks this is the slippery slope that the global system is in. It is complete absurdity of market mechanisms and price discovery. The new normal is not capitalism and there is no longer any democracy in the world. This is a prime example of decent. Negative interest rates of course! Tell me where you can go from there? Of course the stock market is BTFD as usual taking bad news and spinning it as good. Just yesterday we saw the outright theft of Chinese already hypothecated commodity collateral. It seems the Chinese were not satisfied with just the legalized theft of hypothecating collateral into nothingness they now decided to part hands with the collateral to make sure there is also a physical nothingness. It is a wonder Mak is so enamored of China. I think because he secretly loves corruption and manipulation. Put your seat belts on the ride will be fantastic soon.
bob on Thu, 5th Jun 2014 7:56 am
All the countries are deeply in debt…there is no difference!!! China has built whole cities for millions of people with only 10,000 people living in them…An article like this just shows its ignorance and lack of understanding of the whole system….once the dollar goes down BAU goes down there will be no Russia, no China No United States!!! And yes for you smelly old farts no pension or 401k! The older generation thinks the system is going to fail for everyone but them….what ignorance!!!
bob on Thu, 5th Jun 2014 8:10 am
“Norm,
If you can afford to buy that new Lamborghini, peak oil shouldn’t be much of a concern for you. At least for a while longer than most. You might want spend a little extra and get it bullet proofed though.”
This is a comment that I pulled from another post and it is another vindication that people don’t get it…even long time posers here….when collapse happens it will happen fast and it won’t matter what kind of money you have or who you are!! That is a big reason we got into this problem and climate change problem…people believe it won’t happen to them…you can cheer all you want for collapse but you will not be safe when it comes and it won’t be on your computer to watch it will be at your front door….I suggest reading our finite world and scrolling down to the comment section for a better understanding…..
Makati1 on Thu, 5th Jun 2014 8:57 am
Ah, but Davy, you cannot see the forest for the trees. Do you really think the Us is immune to ALL the things you forecast for me here? If you do, you are deceiving yourself. Over half of the adults in the US are on some form of drugs, legal and illegal, that will disappear when the crash comes. Those same 50% are armed. Big difference from a country not on drugs and not armed.
You don’t want to admit that the US is as bad as, if not worse than, any 3rd world country. Your misplaced patriotism is not going to make a difference when the time comes.
I know, maybe better than you, what the conditions in China are like today and I don’t need the twisted/corporate owned US MSM to tell me what to think. I’ve been there. Its less than 500 miles from my condo, but I feel safer here than I would living in my previous home in PA. Wait until you see the first drone flying over YOUR home, or your door is broken down at 3 AM some morning by the US Gestapo. Exaggeration? Maybe. Maybe not.
Makati1 on Thu, 5th Jun 2014 9:09 am
BTW Davy, I already have a place out of the city and will be there at the slightest sign of collapse. The Philippines is still growing at about 7% per year. Hardly declining. The farm can more than support us if necessary. Two clean water springs on the property and near the Pacific with a river 500 meters downhill. No, I think I will be quite safe and able to survive reasonably comfortable 50 air miles from Manila and 80 by road. I am in a very rural, low income area and not near the wealthy enclaves that will attract the gangs and problems.
Most of the Filipino natives who live/work in the city will also go back to their homes in the countryside. Families are still tight here and most everyone has a place to go when the time comes.
Juan Pueblo on Thu, 5th Jun 2014 9:12 am
I believe the US$ will lose its current relevance as a reserve and international trade currency. It is already beginning to happen. I believe this will cause more damage to the USA than other parts of the world. Diversifying investments is always a good idea, and holding a basket of currencies is a smart thing to do today.
My wife and I have been living legally in the USA for 25 years. While I am not an American, this is my home. I may be forced to go back to wherever I came from before I die by all this BS, and I am not looking forward to it.
Davey on Thu, 5th Jun 2014 9:37 am
Mak, I may miss the forest but I can see STUPID. With the pop overshoot of your country your little farm is toast. BTW the worst meth addictions and widespread use is in Asia. Talk about a nice addition to your Asian paradise and that is zombies. We have them here but we don’t have the worst overshoot in the world. Sorry Mak for your delusional thinking.
Makati1 on Thu, 5th Jun 2014 8:17 pm
Blindness is also a part of denial. As I said, I chose this place as the better of two choices. You seem to have a very jaundiced view of Asia and the Philippines. Maybe something happened in your life to cause that but obviously it is a problem. I am not going to read you comments anymore as they are irrational and obviously Amerocentric to infinity.
That you are, or once were, one of the 1% may be the reason. Funny that I live in a city of 25 million yet I don’t see any signs of drug addictions beyond cigaret smoking and beer. The people here are mostly too poor to have an expensive habit. No drug wars or killings like in Philly, or any US city where they spend $70+ billion per year on illegal drugs.
I wish you luck on your farm as the climate changes and the Police State closes in around you.
Davy, Hermann, MO on Thu, 5th Jun 2014 8:38 pm
Mak, you just ignore the news of meth addiction across Asia. Your policy is to ignore MSM news that does not fit in with your world view. When MSM news does fit you are crowing it all day long. I have no problem with the Philippians. The problem is you cramming down my throat anti American comments and Asian glorifications. That is what gets old. Mak you will be in a tight spot in a few years being in a Mega City in the third world. If you don’t think so good luck chap. I can care less if you read my comments. I will make sure to respond to your irrational comments when ever I see them. You are only a step up from a Noobster.