The next phase in acceptance of the Chinese Yuan as the future global reserve currency is taking place tomorrow as Chinese bank analyst Liu Dongliang reported on Sept. 29 that Europe will begin direct trade with China using the Yuan and Euro as compatible currencies going forward. In a move that reflects the work done earlier this year by 23 nations to install currency swap lines to handle the Chinese Renmimbi, Europe appears ready to dive right in and create a new trade partnership that is expected to be beneficial for both the Eurozone, and Chinese markets.
Belief that the Yuan will eventually supplant the dollar as the global reserve currency is an idea that is currently being talked about at the highest levels of international and sovereign banking. In fact, exactly two weeks ago the British Chancellor of the Exchequer George Osborne proudly announced Britain was the first use to issue a Yuan denominated bond as a viable financial instrument, and that he has full confidence that one day the Chinese currency will have the ‘potential to become “the main global reserves currency”‘.
China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency.
The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment, the People’s Bank of China said today in a statement on its website. HSBC Holdings Plc said separately it has received regulatory approval to be one of the first market makers when trading begins in China’s domestic market.
The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments in August and more than one-third of the world’s financial institutions have used it for transfers to China and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week. – Bloomberg
Using the Yuan in direct trade is just the next step in an already banner year for the Chinese currency. Earlier this month, Russia announced that they would begin selling oil in both Roubles and the Yuan, thus cracking wide open the decades long petro-dollar system that has forced nations to buy dollars so they could purchase energy for themselves and their economies.
The dollar’s greatest ally has always been Europe and Japan, but both are quickly moving towards, or hedging their bets, with the up and coming currency that is the Yuan. And as the U.S. continues to print from its central banks and devalue the reserve currency to large degrees, the prospect of trading in a different and perhaps one day potentially gold backed currency like the Renmimbi, becomes an alternative many inflationary nations will be taking a long hard look at.