The Daily Update - Renminbi

This week the US Department of the Treasury issued a report to Congress on Foreign Exchange Policies of Major Trading Partners of the United States. Bilateral trade imbalances are a key concern for this US administration and the report monitors ‘where unfair currency practices may be emerging and encouraging policies and reforms to address large external surpluses’.

The Treasury looks at 3 criteria in compiling a ‘Monitoring List of major trading partners that merit close attention to their currency practices’:

The Daily Update - When are reserves enough...?

China’s fx reserves fell to, a still very substantial, USD 2.9982tn in January. Although the largest reserves globally, the dip through the psychological USD 3tn threshold has shaken some market players, despite the same commentators saying that the country’s reserves were too large back when they stood at ~USD 4tn! What the reserves are made of only Chinese officials know, however the drop in reserves, albeit attributable to renminbi protection, is also caused by huge currency swings, or fx valuations. Since June last year, sterling alone has fallen 12.6% against the onshore renminbi, and 16.5% against the dollar, at time of writing.

The Daily Update - Can Turkey give thanks...?

Happy Thanksgiving to those of you celebrating today. Donald Trump’s call for unity in his Thanksgiving holiday address was well received; we do hope that divisions globally begin to heal.

Today should be a typically quiet market day with the US out feasting on ~46 million turkeys. Obama performed his last ever turkey pardon as president with Tot and back-up ‘vice-turkey’ Tater living to fight another day. Meanwhile back in the UK, one of our colleagues is still trying to track down a Meleagris gallopavo.

Wealthy Nations Daily Update - China FX Reserves Stem Decline

Yesterday’s announcement from the People's Bank of China (PBoC) showed foreign reserves up over US$10bn in March. FX reserve declines (not outflows) had averaged $98bn between November 2015 and January 2016 before slowing to $29bn in February. Returning to a slight positive last month makes previous anxieties (and many loss making shorts) look increasingly misplaced. On a longer perspective the decline has decelerated from quarterly outflows of 5% in the second half of 2015 to 3.5% YTD. The downward trend continues to warrant monitoring; but the fact that it has been decelerating throughout 2016 should help adjust fears of an imminent tipping point towards more longer term concerns of slowing growth and the inevitable volatility associated with reform.

Wealthy Nations Daily Update - PBoC - RMB

On Friday, the People’s Bank of China (PBoC) decided to disclose the components of their trade weighted index for the renminbi (RMB); the China Foreign Exchange Trade System (or CFETS RMB Index). The concept of a trade weighted basket is nothing new, just the disclosure of the composition and weightings. In fact in 2007 we wrote that, “We know from comments made by officials from the People’s Bank of China, that the central bank manages

Wealthy Nations Daily Update - China SDR

As we have expected for some time, the renminbi (RMB) is now odds on favourite to be the next member of the IMF SDR basket. We believe the decision was, unofficially, made months ago and the delay to the vote was indeed just to allow time for the Chinese to put the required criteria in place.

The fact that the IMF delayed their decision until the end of this month, when the board of members vote, has also given members time to air their support, i.e. the UK, US and Europe. Japan has some domestic issues to resolve while they are in their second recession since Abenomics and his quiver full of economic arrows. We look for RMB inclusion as soon as September next year, effective 1st October.

Wealthy Nations Daily Update - Sino-UK Ties

The President of the People’s Republic of China, Xi Jinping, will be visiting the UK next week in what has been hailed the “Golden decade” of Sino-UK ties. On the top of his agenda will be the announcement that China is to pick London as the first offshore renminbi trading hub outside of Asia; London is already the third largest clearing hub for redback transactions, behind Hong Kong and Singapore.

Wealthy Nations Daily Update - Renminbi / Swift

The Chinese renminbi is now the 4th most active global payment currency according to yesterday’s SWIFT report titled, “Renminbi's Stellar Ascension: Are You On Top Of It?” The renminbi, reaching a record high of 2.79% of global payments, overtook the yen by a slim margin of 0.03%. The US dollar, euro and sterling still dominate the top 3 positions accounting for 44.8%,27.2% and 8.5% respectively so the renminbi is expected to hold around this position for a while having jumped 3 positions in the past year and another 5 in the 12 months prior to that. Following this trend it is certainly conceivable for the renminbi to overtake sterling around 2020 and catch-up with the euro within a decade.

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