Simon Black on JUNE 1, 2012
June 1, 2012
New York City
This week saw yet another move from the Chinese government to internationalize its currency and eventually overtake the dollar.
The latest? Direct foreign exchange between the Chinese renminbi and the Japanese yen. In other words, when the two nations trade, they’ll no longer need to use the US dollar as an intermediate currency.
China is Japan’s largest trading partner… yet a massive 60% of their mutual trade right now is transacted and settled in US dollars. When Honda in Japan buys supplies from a Chinese company, the two would ordinarily close the deal in US dollars. Until now.
This is just another of the many, many signs of increased internationalization for China’s renminbi. Others we’ve seen just in the last year include:
- direct currency swaps with many of China’s trading partners
- plans for other countries to issue renminbi-denominated sovereign debt (Indonesia)
- multinationals issuing renminbi-denominated bonds (Tesco, HSBC)
- ease for foreigners to open renminbi bank accounts (Bank of China in New York City)
Bluntly, the writing is on the wall for the dollar’s gradual displacement… and several years from now when the dollar’s share of global reserves becomes a minority, it will all have seemed so obvious.