macroeconomics

Perhaps, no one will argue that China tries to speed up the process of abandoning the dollar today. It is not one or two countries, but mostly they use their own currencies in the mutual settlements for now. However, Chinese currency plays the first violin; that is, most of the non U.S. dollar trading is committed to its use. And this is nothing else than the income withdrawal from the American side. In fact, today the United States of America may receive less interest on its annual turnover, which is estimated at $380 billion. The fact is that the countries that have signed a bilateral agreement with China have a turnover of $ 380 billion in total. These countries are Japan, Russia, Ukraine, Chile, Brazil and to a certain extent Iran. Plus, the trade volume with ASEAN countries exceeds $ 250 billion a year, which in itself is not a bad prospect for the settlement in national currencies. India and Iran, which use rupees in turnover, are an example of states that use their own currencies in bilateral trade. By the way, the current $ 380 billion in turnover was planned by China back in 2009.

In April 2013, the exchange rate of the RMB against the U.S. dollar during the nine days kept at a high record, rising for the entire month of 0.77 percent, more than three times. In 2013, the value of China's currency to the dollar has risen by about 1 percent, while the overall growth after 2005 this figure exceeded 32 percent. The RMB exchange rate has demonstrated rapid growth and in relation to other national currencies. In recent years, the international currency market value the Japanese yen and the pound sterling dropped significantly, resulting to a "passive" increase the Chinese currency. According to the statistics from the Bank for International Settlements, in the first quarter of this year, the current rate of the RMB to a basket of major currencies rose by 3.5 percent.

Despite all these facts, the representatives of the international community invariably have different opinions as to the rate of the RMB. The International Monetary Fund report "World Economic Outlook" released April 16, said that China's currency is still "a little underestimated.". On April 15 the U.S. Treasury Department in its semi-annual report on exchange rates noted that the RMB is "much undervalued" in relation to the U.S. dollar. Such an assessment has caused confusion among of many economists, who suggest that the value of the Chinese currency is closer to the proper level. Their position is based on the fact that the main argument in favor of the Chinese currency undervaluation - too large trade surpluses - has lost its force. Over the past two years, the share of the surplus in China's GDP dropped from 6 to 3 percent, reaching a universally accepted "balanced" level. Moreover, the currently used method of compiling trade statistics greatly overestimates the surplus of China. Under the new method, the surplus in China's trade with the United States will be reduced by 25 percent. Several factors - economic strength, balance of trade, capital flows, and growth prospects affect the exchange rate, so the conclusions about the level of the RMB are difficult to do. As for the international community the RMB rate is not a purely economic issue, but the problem, including the political, diplomatic and other factors. That is why there is so much controversy surrounding the RMB. However, the key issue is still not a digital reflection of the Chinese currency but the degree of perfection of the mechanism of its formation. The goal to improve the formation mechanism of the Chinese national currency is to maintain the balance of the Chinese currency. Past experience shows that a re-evaluation, as well as the national currency undervaluation, brings damage to the economy.

In the case of the RMB revaluation the interests of export enterprises will be affected, which will have a negative impact on financial stability and the real economy. Due to the fact that China and its partners are already deeply embedded in the international industrial chain, the possible economic and financial risks in China will certainly spread to the world. Therefore, forced revaluation of the Chinese currency, excluding the economic realities may harm both the U.S. and China. On the other hand, the underestimation of the RMB may bring short-term risks in the area of ??inflation and economic overheating; prevent long-term process of modernization of Chinese industry and economic transformation. It will increase the surplus and the imbalance in global trade that is contrary to the goals of the global reforms to ensure economic equilibrium after the global financial crisis. From this point of view, persistent objection to the revaluation of the RMB could lead to the fact that China will come away from the tendency to reform. As for the convertibility of the Chinese currency, this time, apparently, is very close. June 30, 2012 Celestial Empire gave an unambiguous signal of its intention to make the RMB a convertible currency. China is determined to make its currency freely convertible. No wonder that in 2005 China is actively involved in the liberalization of the foreign exchange regime and tries to expand the impact of the RMB in the world. Among the examples are an agreement to use their own currencies for settlement signed China and Japan, China and Russia, India and Japan. China and Iran have put dollar settlements on barter. Another country is Chile, Latin American state has agreed with China to upgrade its trade relations and increasing their volumes doubled in the next three years. June 29, 2012 the central banks of China and Australia signed a currency swap, which allows exchanging currency in the amount of 30 billion Australian dollars ($ 31.3 billion), or 200 billion of the RMB. There is a whole list of countries whose central banks may grant loans in RMB. These are Australia, Mongolia, Turkey, Malaysia, UAE, Pakistan, Thailand, Hong Kong, South Korea, New Zealand, Singapore, Iceland, Argentina, Indonesia, Belarus, Ukraine and Brazil.

 

Thus, no matter what they say, Chinese currency is gradually gaining momentum in the foreign exchange market, while remaining fairly stable within the PRC. That is what makes it the most attractive to investors.

 

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