While many investors discuss whether or not the economy of
the People's Republic is having a 'hard' or 'soft' landing,
there is no debate the Chinese renminbi (
CYB
,
quote
) is gaining greater acceptance as a currency of exchange. Those
looking to buy and sell in emerging market nations should take
note.
[caption id="attachment_59423" align="alignright" width="300"
caption="The Chinese Yuan continues its march to reserve currency
status."]
[/caption]
In a recent agreement,
Brazil and China will allow for $30 billion in
currency swaps utilizing the real and the renminbi
. Brazilian Finance Minister Guido Manteg says "it will allow the
countries to boost financial reserves, which is useful at a time of
financial stress... with that swap, our trade flows can
continue."
This will boost trade between Brazil and China. At present,
China accounts for about 20% of Brazil's export earnings, chiefly
commodities such as iron ore, oil, and soy beans.
The Chinese renminbi will now be accepted as payment per the
terms of the swap agreement. That significantly increases the
appeal of buying the stocks, bonds, and exchange traded funds of
Chinese entities.
This also continues Beijing's foreign investment strategy to
have the
Chinese renminbi accepted as a global reserve
currency.
When that is fully established Chinese economic dominance will be
greatly enhanced. Export earnings in hard currencies will no longer
have to be used to pay for imports, or for buying foreign assets as
the Chinese renminbi will be accepted.
Currency investors in the U.S. should be on watch. The rise of
the renminbi as a reserve currency does not bode well for the
future of the U.S. dollar.
That will make it much easier for companies to use the Chinese
renminbi to buy commodities such as oil, copper, and coal, for
which the People's Republic is the largest customer in the world.
To increase its global presence, Beijing and companies from China
will be much better financed with a Chinese renminbi that is
accepted as a medium of exchange.
It's hard to tell what will happen next with the Chinese
renminbi. One thing is certain, though. It can only gain in
importance to the global economy.
