"The move of the yuan as a global currency is a very important one in the long run, as it will have potentially dramatic effects on the U.S. dollar as the sole reserve currency but for now things are going along at a snail pace. In the interim, the Chinese currency is essentially pegged to the U.S. dollar (for better or worse). Until the % of growth in China from exports is reduced, and they are far more reliant on internal consumption I don't see this loose peg changing anytime soon. Longer term, with 3 ugly ducklings (euro, dollar, yen) dominating the world's FX markets, the cart will eventually be turned over when a country (or region) coming from a position of fiscal strength rather than weakness enters the fray. Via NYT:
Now that it has passed Japan to become the world’s second-largest economy after the United States, China is considering the next step as a world power: making its money a global currency. No one expects that to happen immediately. And even the Chinese government is wary of making some of the free-market moves that would enable the renminbi to take its place alongside the dollar, euro and Japanese yen as a fully convertible reserve currency.
Still, over the last year Beijing has begun to gradually loosen its tight currency controls. For the first time, for example, American companies like McDonald's and Caterpillar have been allowed to finance their China projects by selling renminbi-denominated bonds in Hong Kong.
Meanwhile, in Russia, Vietnam and Thailand, some cross-border trades with China can now be settled in renminbi, so that trading partners do not have to convert in and out of dollars. One pilot program lets Russian companies like Sportmaster, a retail chain based in Moscow, buy or sell goods using Chinese currency.
And in New York, the Chinese government has permitted an overseas branch of Bank of China to accept deposits in renminbi. That enables depositors outside China to bet on a currency that is widely expected to appreciate against the dollar over the next few years.
“This is all encouraging the internationalization of the renminbi,” Kelvin Lau, an economist at Standard Chartered Bank who is based in Hong Kong, said of Beijing’s recent moves. “They want to make the Chinese currency a popular currency.”
at http://www.marketoracle.co.uk/Article26280.html
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