The Roadmap for Yuan Internationalization should be revised, as it has failed to achieve the objectives of lowering exchange rate risks and reducing foreign exchange reserves, an economists said.
The Chinese currency Renminbi (RMB), or the Yuan, strengthened 116 basis points against the Greenback on Friday, with the central parity set at 6.3549 per USD, according to the China Foreign Exchange Trading system.
In China's foreign exchange spot market, the yuan is allowed to rise or fall by 0.5% from the central parity rate each trading day.
The central parity rate of the Yuan against the USD is based on a weighted average of prices before the opening of the market each business day.
China has been pushing the use of the Yuan in trade settlement as a starting point for the currency's Internationalization.
But, the YUan is experiencing an asymmetrical Internationalization, which means the market wishes to lend in the currency, but no one wishes to borrow in it, said Yu Yongding, a researcher with the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences.
In an essay published in the latest edition of International Economic Review, Yu, a former central bank advisor, said that Yuan trade settlements haven't yielded many benefits so far for China because of the imbalances that result from paying for imports with Yuan and receiving export proceeds in USD's.
There is clear evidence that use of the Yuan in trade settlement will not lead to declines in new additions to the Nation's foreign exchange reserves, he said.
Further, if the Yuan does not gain acceptance in the settlement of Chinese exports, it will not help exporters reduce exchange rate risks arising from the fluctuating USD, he said.
Yu commented further on the issue at an international economics conference organized by IWEP in Beijing last week.
He said that China's US$3.2-T in foreign exchange reserves are subject to capital losses because of possible USD depreciation. And he said, expectations of a Stronger Yuan are attracting Hot Money, or speculative capital.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.