The Yuan continues to gain traction as a medium of payment in the Global Market. In 2012, it was ranked 12th and it just four years it has surged so far. The next challenge will be the Euro, and then it will be destination USD. It is just a matter of time before it displaces the US dollar to become the next world reserve currency.
2.17% of transactions are now conducted in Yuan, up from 1.59 in October of 2015. Britain was the 1st nation in Europe to establish a Yuan Clearing centre; now Switzerland has decided to Join and expand the network that now includes, London and Paris.
While many state that Chinese economy is slowing down, it still managed to grow at an astounding rate of 7.4% last year. It is projected to drop to 7% this year, but even at this rate, it is still the envy of the developed world.
“The expectation that the yuan will depreciate will make it less attractive in the international market,” said Zhu Lixu, a Shanghai-based strategist at Xiangcai Securities Co. “China’s economy hasn’t touched bottom, and it hasn’t resolved problems of its expanding shadow-banking market and local government debt. So there are still lots of uncertainties that could cloud the IMF’s decision at the end of this year.”
“If the euro continues weakening and involves a cost to hold, other central banks will be looking for alternatives,” Davis Hall, global head of foreign exchange and precious metals advisory at Credit Agricole SA’s private-banking unit, said in a Jan. 28 phone interview. The yuan emerges as “a more and more viable” option as the PBOC is likely to keep a liquid trading environment for the currency while it’s impossible that China will have negative interest rates, he said.
Outlook Going Forward
The world is in the midst of currency war and so even if the Yuan is devalued, the Chinese are only going to devalue it to compensate for other currency devaluations. The net result will be no effect to a very small effect as the entire world has embraced the “devalue or die” game, spearheaded by the West.
Given that the Yuan is destined to become the next world reserve currency, we view China as great long term buy. Astute investors should consider making a list of companies.
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