A Fistful of Yuan Takes a Step Closer to Reality for Everyone

In putting together my series on doing business in China in the early 1980’s, I adopted the title A Fistful of Yuan, turning a business tale into a spaghetti Western (or, more properly, an Eastern.)

Well, it looks like the Chinese are working up towards making the yuan a real hard currency, as this indicates:

The Chinese government’s decision this month to let exporters in a small number of cities settle their overseas trade in yuan rather than in US dollars has far-reaching implications, according to economists, even though the immediate impact is minimal.

The trading hubs of Shanghai at the mouth of the Yangtze River and Guangzhou, Shenzhen, Zhuhai and Dongguan in the Pearl River Delta further south can use the yuan in overseas trade settlement, a State Council, or cabinet, meeting chaired by Premier Wen Jiabao said. The two deltas are the base for most of China’s export-oriented industry.

The settlement scheme is voluntary and of benefit to relatively small groups, said Pauline Loong, senior vice president in charge of China policy and risk research at CIMB-GK Securities (HK) Ltd, but “the implication is far-reaching. The scheme extends the use of the Chinese currency outside of the mainland. We see this as the first step on the road to full liberalization of China’s capital account and full convertibility for the renminbi,” one term for the Chinese currency, also known as the yuan.

And so we, in the not too distant future, may need a “fistful of yuan” (or perhaps a few yuan more) to get along.

2 thoughts on “A Fistful of Yuan Takes a Step Closer to Reality for Everyone”

  1. Does this mean they have to float the currency? Or do they get to have their cake and eat it to–having an artificially cheap currency AND being a major currency in the world? That does not seem like a realistic aspiration…

    1. I think they’re going to have to float the yuan if they expect it to become a real “hard” currency. They’ve put that off for a long time, but they must go through with this if they a) expect to be the world economic power they aspire to and b) want to buffer themselves from the coming problems of USD. Whether their gradual approach will pan out depends upon many timing issues, but they realise that a sudden lurch from USD would be a disaster for everyone.

Leave a Reply