China Enters Top 10 Currencies

By tothetick

The number 10. From time immemorial it has been a fascination for people around the world, in every culture and in every civilization. 10 is the Pythagorean symbol of perfection and completeness and the basis of the decimal system that we use today and being in the top 10 means something for both the people that are there and also for those that are trying to clamber up the rankings. Today, China has entered the top 10 in something else and dethroned another country. The Chinese Yuan is now one of the 10 most-traded currencies in the world and has attained perhaps perfection and completeness. Or, at least it might be getting there soon to the dismay of many.

Today China ranks 9^th place in the currencies that are the most traded in the world. That might not seem great and far off the top position. But, it entered the top 10, jumping in one foul swoop from 17^th place to 9^th in just the space of 3 years when the last survey was carried out by the Bank of International Settlements (BIS).

But, the Chinese currency is far from becoming the world’s leading currency yet it would seem. According to results of research carried out by HSBC in a survey of more than 700 worldwide businesses, there are relatively few trade settlements that are being made as of yet in the Yuan. One main reason for that is that the Yuan is still not a fully-convertible currency, although the Chinese State Council has already made many statements about the fact that it should be entirely convertible by 2015 and therefore will become internationalized then. The Chinese government has made convertibility of the highest importance. It was back in 2007 that the Chinese first announced that they wished to liberalize the flow of capital and allow for convertibility to freely take place, enabling the buying of assets or taking equity around the world. The fact that the Yuan has entered the top 10 world currencies means that the Chinese currency is one step closer to allowing convertibility to take place entirely. Afterwards, the challenge will be on for the top position between the Yuan and the Dollar.

• In an HSBC survey only 52% of companies stated that they had an understanding of what liberalization of the Yuan would actually mean for them and about 30% stated that they were still unwilling to use the Yuan in transactions and foreign-trade settlements.
• But that also means that 70% are in favor of using the Yuan as the trade -settlement currency.
• Chinese businessmen are starting to see ways of changing the opinions of businessmen from overseas.
• Many of them offer discounts on purchases by foreign firms if they agree to settle in Chinese Yuan.
• Those discounts are said to reach somewhere in the region of an average of 5%.
• A little bit of patriotism and national protection or privilege can go a long way when it’s got a population of 1.344 billion people ready to back it up.
• Failing to trade in the Chinese Yuan will mean losing out for foreign businesses.
• Losing out will mean losing the competitive edge.
• There are no two ways about it: businesses will agree to trade in the Chinese Yuan in the coming years in order to remain competitive.
• Once a few have started (and they already have), the others will have to follow.
• 25% of those firms that were surveyed stated that they would be using the Chinese currency within the next 5 years.
• 42% of them stated that the main reason would be to get a better deal in terms of pricing from their Chinese counterparts.

China is already the second largest economy in the world and in just a few years it will dethrone the USA from the top position. Even as the second-largest currency there’s no way China can afford to allow the Yuan to sit out the economic dance and just watch the waltzing Dollar. Although HSBC states that 2015 will be too early for the Yuan to be fully convertible and this will more than likely occur in about 2017 now, due to the slowdown in the Chinese economy. If the Yuan can’t reasonably sit there as an on-looker as the second-largest economy the only way to get to the top position is to convince businesses and governments around the world that the Yuan is a viable option and will reduce trade costs.

Renminbi: Top 10 Traded Currencies

But, all the legal bribing into using the Yuan as a trade currency between foreign firms and Chinese companies will do little good as long as the Chinese government is still dragging its feet on the overhauling of its financial system. While reforms are slow, the Yuan will be held back. While the shadow-banking system is not dealt with entirely, businesses will remain wary.

Yesterday, the People’s Bank of China stated that they were considering attempting to increase the loosening of investment flows of capital into and out of mainland China. That too is one step closer to getting to full convertibility. Deals have already been agreed in terms of currency swaps with countries such as Pakistan, Thailand or South Korea, for example. The Australian government also agreed this year to directly exchange their currency with the Chinese, thus cutting out the need to first convert in US Dollars and then into Chinese Yuan. If the top 10 currencies are starting to do that, then it looks as if they will be giving the Chinese a helping hand into turning the Yuan into a fully convertible currency sooner than might be expected.

As for the rest of the top 10 positions, the Mexican Peso is in 8^th position just above the Chinese Yuan. The Swedish Krona and the Hong Kong Dollar were ousted from their positions by the Yuan and the Mexican currency. The greenback was of course in number one position and the Euro came in 2^nd with the Japanese Yen in 3^rd. The GB Pound was 4^th.

• The foreign- exchange market is growing also. It increased from a daily turnover that averaged out at $5.3 trillion.
• That was up from the $4-trillion figure in 201, by a rise of 35%.  The Yuan’s trades are today worth $120 billion per day on average.
• In April 2010 this year that figure was only $34 billion and so there has been an increase of 3.5 times.
• The US Dollar has roughly 85% of the daily share of most-traded currencies in the world today still.
• Most currencies are traded in London (41% of the daily average) and the US share stands at 18.9%.

Moving up from 17^th position is a huge leap for the Yuan. It’s certainly going to be a tough game to topple the US Dollar’s gigantic share of the market. But, businesses will move where the money takes them and where the Chinese can offer a discount for trading in their currency. Patriotism goes out the window and down the tubes when it comes to making money.

People have no qualms and even fewer scruples when it boils down to make a quick buck. We’ll have to change that too into ‘making a quick Yuan’. Not quite the same Renminbi about it, is there? 

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