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China spreads its currency at Global level by establishing First Yuan clearing Bank in US

Chinese officials have undergone years of toil and entered into more than 20 currency swap agreements to give the RMB a global image

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FILE - Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. -VOA
  • China established the first clearing center for the Chinese yuan in the US
  • China wishes to enter the US financial markets with RMB business to challenge the US dollar on its home turf
  • The way Chinese currency is declining at the rate they are now, there will be no RMB available outside China in 18 months

September 23, 2016: China this week established the first clearing center for the Chinese yuan, or RMB, in the United States. The move is seen by some as a signal China wants to take on the dollar on its home turf.

But there is more than a sense of bravado behind the decision. This is a crucial time for the RMB, which is struggling to stay on course while preparing to enter the coveted currency basket of International Monetary Fund’s Special Drawing Rights (SDR) on October 1st.

In financial terms, there was no reason to establish an RMB clearing center as the U.S. market can easily be serviced through dedicated RMB centers in other parts of the world.

FILE - Chinese paramilitary police march past China's central bank, the People's Bank of China, in Beijing, March 12, 2016.
FILE – Chinese paramilitary police march past China’s central bank, the People’s Bank of China, in Beijing, March 12, 2016. -VOA

“But it sends the signal that China wishes to enter the U.S. financial markets with RMB business to challenge the U.S. dollar on its home turf, so to speak,” Jacob Kirkegaard, a senior fellow at the Washington-based Peterson Institute of International Economics told VOA.

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“As such, this is more a political signal than a financial necessity,” he said. “This is because the RMB rate is an intensely political figure and essentially can be taken as a proxy for ‘faith in the Chinese economy.’ “

No celebrations

Chinese officials have undergone years of toil and entered into more than 20 currency swap agreements to give the RMB a global image. But they are not going to sip wine and declare “gan bei” (bottoms up, in Chinese custom) over the yuan’s entry into the IMF’s basket for SDR a few days later.

Christopher Balding, associate professor at HSBC School of Business Peking University, said China is desperately trying to keep the RMB from crashing by spending $50 billion a month. Beijing is selling dollars out of its reserves to buy up the available yuan in the international market, he said.

“If they [Chinese officials] went on national TV and announced that they would let the market fully determine the value of the RMB, I don’t think it is a stretch to say that the RMB will drop 15-20 percent in the blink of an eye,” Balding told VOA.

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“China’s foreign investment is down 40 percent. When you couple that with the continued amount of money leaving China, that is putting a lot of pressure on the RMB,” he said.

Beijing is actually de-internationalizing its currency by sucking out the available yuan in the world markets. “If they [Chinese currency] are declining at the rate they are now, there will be no RMB available outside China in 18 months,” he said.

FILE - An exchange store staff shows a Chinese RMB$100 banknote (L) and a US$100 banknote in Hong Kong, May 16, 2006.
FILE – An exchange store staff shows a Chinese RMB$100 banknote (L) and a US$100 banknote in Hong Kong, May 16, 2006.-VOA

Battle for stability

China’s recent policy to keep the currency’s value roughly stable has been driven by its desire to avoid sharp currency moves in the lead-up to the G-20 summit that took place in China recently, and, now, the forthcoming inclusion of the RMB in the IMF’s SDR basket, according to Eswar Prasad, senior professor at Cornell University and author of an upcoming book, Gaining Currency: The Rise of the Renminbi.

“China’s government faces a conundrum that other reserve currency economies have faced in the past – how to promote the currency’s role in global finance without losing control over the currency’s value,” Prasad said, adding, “Currency management policies over the last year suggest that the government sees stability in currency markets as a higher priority than promoting the currency’s international role.”

China’s currency moves are not meant to protect or push forward its exports. Chinese exporters are not likely to gain hugely by a slide in RMB value or lose much if it was a little stronger, because many of them face little competition in the price and quality range in which they operate, experts said.

FILE - A container is loaded onto a cargo ship at the Tianjin port in China.
FILE – A container is loaded onto a cargo ship at the Tianjin port in China.-VOA

“China is most interested in maintaining basic stability of its currency and limiting volatility. Reducing expectations of substantial or sudden depreciation helps reduce capital outflows,” said Scot Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. “The recent modest depreciation is not geared to support exports.”- VOA

Next Story

Beijing Could Improve Human Rights As Part Of The Universal Periodic Review

All U.N. member states undergo such screening, generally every four to five years. Le said China had accepted 82 percent of the recommendations presented during the review last November. The council formally adopted the review of China without a vote Friday.

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Indian Muslims shout slogans during a protest against the Chinese government, in Mumbai, India, Sept. 14, 2018. Protesters demanded that China stop detaining ethnic Uighurs in detention and political indoctrination centers in Xinjiang region. VOA

A top Chinese diplomat claimed Friday that detention centers for Muslims in China’s western province of Xinjiang are “campuses, not camps” and said they are eventually going to be closed as a “training program” for ethnic Uighurs is downsized.

At the U.N. Human Rights Council in Geneva, Executive Vice Foreign Minister Le Yucheng reiterated China’s insistence that the detention centers are designed to provide training and fight regional terrorism. He also claimed that officials from around the world, including from the U.N., had visited the region and that the detention centers in Xinjiang are “actually boarding schools or campuses, not camps” as reported by critics.

The U.S. State Department said this week that China has “significantly intensified” a campaign of mass detentions of minority Uighurs over the last year, with between 800,000 and 2 million people from the Xinjiang Uighur Autonomous Region interned in camps. The centers have drawn condemnation from across the world.

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At the U.N. Human Rights Council in Geneva, Executive Vice Foreign Minister Le Yucheng reiterated China’s insistence that the detention centers are designed to provide training and fight regional terrorism. Pixabay

Le told reporters he had recently visited some Uighur centers in Xinjiang — and played ping pong and ate halal food there. He didn’t specify when the detention centers would be closed, other than telling reporters later that would happen “at the appropriate time.”

He also took aim at a U.S.-led event in Geneva on Xinjiang — calling that “unacceptable” interference in Chinese sovereignty.

Human Rights Council

The envoy’s comments came as China was responding to more than 200 recommendations by other countries on ways that Beijing could improve human rights as part of a Human Rights Council process known as the Universal Periodic Review.

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He also took aim at a U.S.-led event in Geneva on Xinjiang — calling that “unacceptable” interference in Chinese sovereignty. VOA

All U.N. member states undergo such screening, generally every four to five years. Le said China had accepted 82 percent of the recommendations presented during the review last November. The council formally adopted the review of China without a vote Friday.

Also Read: How to Pay your Credit Card Bill Conveniently

The United States, historically one of the few countries to confront China over its human rights records, pulled out of the 47-country Geneva-based U.N. body last year, alleging it has an anti-Israeli bias and other shortcomings.

Norway’s ambassador in Geneva voiced the most criticism among diplomats at the council on Friday. Hans Brattskar said Norway regretted that China did not accept any recommendations related to the Uighur detention situation in Xinjiang. (VOA)