Tuesday, July 21, 2009

Yuan follower of Dollar?

"To an extent, a global role for the Yuan appears inevitable. How widely a currency is used around the world is usually a function of how important its home country is to the global economy. During the 19th century, when the British Empire reigned supreme, the pound was the top international currency. Since World War II, that role has been played by the dollar, with the U.S. having by far the world's biggest economy. Now that China is rapidly charging up the list — it currently ranks third and could overtake Japan as No. 2 as soon as next year — there is good reason to believe the Yuan could dash into the big league of global currencies."

How widely a currency is used doesn’t mean that it is going to be the international currency.
How much the country is trusted, that in my opinion is going to be the parameter by which a currency is going to be the international currency.
As it always was.
That is why the Dollar is losing importance.
Because America is not "trustable" any more.
And if you do not trust, you usually do not invest.

Does China look more trustable than US?
Besides China is NOT ready to ditch the dollar, on the contrary, China is actually the biggest supporter of the dollar.

"Greater use of the Yuan in trade would improve the competitiveness of Chinese exporters by reducing transaction costs and currency risks. By internationalizing the Yuan, says HSBC's Qu, China can also begin extricating itself from the "dollar trap," in which the country, through its trade, amasses giant surpluses of dollars, which forces it to invest in dollar assets."

Going from one (dollar) to the other (yuan)wouldn’t improve the trust and especially wouldn’t guarantee that its value could be over or under evaluated following China’s needs.
We would just jump from an uncertainty to a worse one.
World’s economy doesn’t need it.

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