Renminbi (RMB)/Yuan Appreciation & Internationalization

The question when China's nominal GDP will overtake the U.S.' is closely related to the value of renminbi/yuan. I think China is slowly abandoning its weak yuan policy. As a result, China's nominal GDP may catch America's in the next 5-10 years. On the other hand, as Pepe Escobar and Zoltan Pozsar suggest, "petroyuan" may be coming in the next 3-5 years. One of the most troublesome questions is: would the current hegemony resort to instigating a war over the Taiwan Strait to prevent this from happening in the next 3-5 years?

Please make sure you read the 2 articles by Zoltan Pozsar quoted in the article by Pepe Escobar above.

Please also comment about China's foreign exchange and gold reserves in this thread.

supercat said:

The question when China's nominal GDP will overtake the U.S.' is closely related to the value of renminbi/yuan. I think China is slowly abandoning its weak yuan policy. As a result, China's nominal GDP may catch America's in the next 5-10 years. On the other hand, as Pepe Escobar and Zoltan Pozsar suggest, "petroyuan" may be coming in the next 3-5 years. One of the most troublesome questions is: would the current hegemony resort to instigating a war over the Taiwan Strait to prevent this from happening in the next 3-5 years?

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Please make sure you read the 2 articles by Zoltan Pozsar quoted in the article by Pepe Escobar above.

Please also comment about China's foreign exchange and gold reserves in this thread.

Click to expand...

The nominal exchange rate doesn't actually matter too much anymore.
And it's inevitable that the Yuan will appreciate, for a variety of practical reasons such as:

1. China has a huge trade surplus and is accumulating dollars/currencies that it can't use for anything. So Gold is a better option.

2. China is moving up the value chain and doesn't need to capture every low-skilled and low-value export opportunity. Nor would higher Chinese wages support this. Plus Chinese companies can open factories abroad instead (which uses up foreign currency), and benefit from the low wage/cost levels there

I'll read the articles later, but my initial thoughts are that the US is aware that a US-China war will result in a global economic depression which nobody should want. And if anything, the US initiating a China war would simply accelerate American decline.

Just read through everything.

Everything makes sense and looks accurate, both the major and minor points.

In conclusion, I don't see the creation of an alternative global currency settlement system centred around CBDCs and the PBoC as something the US will go to war over.

The US going to war would just accelerate the creation of a de-dollarised world as all those systems would be activated - irrespective of who wins or loses.

Just on the economic side

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If you look at the World Bank forecasts from yesterday, they've got China at just 4.3% growth for 2023.

When you crunch the numbers, this would mean China accounting for more growth in 2023 than the rest of the world combined.

worldbank.org/en/news/press-release/2023/01/10/global-economic-prospects

Yet in reality, 2023 growth is being pegged at up to 6-8%.
8% is double the World bank projections.

Moscow is now using selling RMB as the tool to defend its currency. Which means, RMB is basically a free floating currency now.

As of this moment, USD/CNH is trading at 6.74815, so there has been quite a recovery to CNH since the re-opening.

Even though Russia is selling RMB in this case, it is likely to buy a lot more RMB for its forex reserves as it is able to export a lot more to China than vice versa due to the high energy prices.

This practice of holding RMB and selling RMB to defend currency could set an example for other countries that are afraid of sanctions.

reposting something that got deleted due to the rest of the post being overly geopolitical
looks like they are going to circulate more offshore RMB which will lead to greater internationalization of the currency. This is an inevitable tradeoff of having a more international currency. The central bank will loose control of it since there is a lot of foreign money that can trade it.

tphuang said:

reposting something that got deleted due to the rest of the post being overly geopolitical

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looks like they are going to circulate more offshore RMB which will lead to greater internationalization of the currency. This is an inevitable tradeoff of having a more international currency. The central bank will loose control of it since there is a lot of foreign money that can trade it.

Click to expand...

I don't see this as a huge issue.

Exports are good to have, but most of the Chinese economy is now based on domestic production and consumption. That will continue whatever the exchange rate is.

And from the World Bank 2023 forecast, we can see China is expected to generate more economic growth than the rest of the world combined.

8% sounds insane and unachievable, I mean China is basically around 30% of the world's economy. For them to grow that much while rest of the world is mostly suffering would require some sort of economical miracle. 4.3% is still massive and it sounds more realistic. But let's wait and see what happens.

The thing about making the RMB into the global reserve is that it is likely to hard cap the ability of China to accumulate real growth, because to do so, China must buy massively more than they sell, in order to spread the RMB.

Assuming global reserve will make China fully usurp America's role as global hegemon, but that doesn't mean much if it means the average people in China will see wages stagnate and that industries, jobs, will have to move out of China into other countries, making them dependent.

This is why China instead wants a basket of different currencies as reserve, so that they can still comprehensively play the mercantilism game.

Appreciation and/or depreciation of a currency greatly affects un-adjusted nominal GDP, hence this measure tells us even less than normal GDP, which is honestly also pretty bad. So I wouldn't even think too much about the appreciation rate of the Yuan.

Currency can fluctuate, but what gives real power is basically how much "stuff" you can produce. Stuff of course not only being goods but also research, educated workers etc. This is the metric that really affects living quality and ability of the country to withstand crisis.

China reached the status of largest economy by GDP not because it desparately prioritized acquiring GDP, but because they followed the path of growing productive forces, which naturally led to more GDP.

And most likely China will one day also assume the role of global reserve currency. But it should not be rushed, instead it should come naturally through developing the living standards, the industry, improving and increasing the jobs etc. This is the concept of Xiaokang society, where the "little man" or the class of commoners, are the ones whose needs are put first.

^^^ China needs more consumption to balance manufacturing. Consumption requires a stronger yuan.

tphuang said:

As of this moment, USD/CNH is trading at 6.74815, so there has been quite a recovery to CNH since the re-opening.

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PBOC raised the value of CNY today, bringing it to the strongest level since July 14, 2022.

Currently, USD/CNY is 6.7264 (it fluctuates depending on when you look at it).

Southeast Asia, Too, Is Losing Patience With King Dollar’s Clout​

Southeast Asia, like much of the rest of the world, is losing patience with King Dollar.

The weaponization of the world’s reserve currency, as through sanctions on those deemed bad actors — such as Russia for its war in Ukraine — has pushed even the typically diplomatic Southeast Asians to warn the US of the consequences.

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