Thread: China’s $50bn IMF deal puts 'redback' on the world stage

From The Times
September 5, 2009

China’s $50bn IMF deal puts 'redback' on the world stage

Leo Lewis, Asia Business Correspondent
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Worker sorts and counts Chinese money in a Peking bank.

China is using a $50 billion (£31 billion) bond deal with the International Monetary Fund (IMF) to expand the global reach and influence of its currency in what analysts say could be a potentially huge development in Beijing’s campaign to internationalise the “redbackâ€

From The Times
September 5, 2009

Beijing looks to reduce its reliance on the mighty dollarLeo Lewis, Asia Business Correspondent

China is beginning a campaign to raise the role of the yuan in international trade and finance and reduce reliance on the American dollar, according to observers in Beijing.

If successful, the yuan would become one of the three biggest global currencies.

Although the observers identify a growing consensus in Beijing for making the currency international, they also believe that there are deep divisions over the ultimate implications: some do not want the Government to lose control of foreign exchange rates by letting the yuan float freely, and fear a loss of control over interest rates.

The currency depegged from the dollar in 2005 and floats in a narrow band of 0.5 per cent around a basket of currencies dominated by the greenback. Internationalising the yuan would slow China’s dollar accumulation, which has been growing at $334 billion (£204 billion) a year since 2005. However, the process is likely to be long and gradual, though analysts at HSBC believe the pace is likely to be faster than many expect, given China’s position as the world’s third-biggest economy.

At first, the plan is to expand the yuan’s role in settling cross-border trade. Some economists believe this could lead to nearly $2,000 billion in annual trade flows — half of China’s current total — being settled in this way by 2012.

One effect would be to transform Hong Kong into an offshore yuan trading centre. The internationalisation is likely to start close to home and then broaden out, with an initial focus on countries that supply China with raw commodities and buy its goods.

Chinese exporters and importers have to rely on the dollar for invoicing their foreign trade. The Chinese Government has launched a scheme that would allow yuan-denominated trades between Hong Kong and five cities on the mainland.

To encourage similar “acclimatisationâ€