Thursday, December 30, 2010
Internationalization of Renminbi-I
Chief Executive Donald Tsang was so happy when the Chinese State Council (9 April 2009) decided to introduce a pilot program for using renminbi (RMB) or yuan for cross-border trade settlement in five Chinese cities, such as Shanghai, Guangdong, Shenzhen, Zhuhai, and Dongguan (CCTV). This will promote economic and trade ties between China and neighboring countries and regions, including Hong Kong. The State Council’s decision is following the meeting of G20 in London where there were little results achieved. Furthermore, the internationalization of renminbi is following the proposal by Zhou Xiaochuan, governor of the People’s Bank of China (PBOC) or head of China’s Federal Reserve, who openly launched a campaign to replace the dollar as the global major international currency (PBOC web). Zhou’s argued that the current financial crisis reflects the inherent vulnerabilities and systemic risks of the dollar-based world economy, and an alternative currency should be considered. Unfortunately, China has not made its own currency automatically convertible for Chinese investment. According to Robert J. Samuelson in Japan Timesonly 27 percent of government reserves are using the euro, and 3 percent of government reserves are utilizing the yen. Can renminbi replace dollar as the rival to the dollar in the future?