Two of the most notable and recent public statements include:
The new China yuan policy announced last month is both a policy shift and a public statement.The policy shift would let US individuals trade up to $4,000 worth of yuan in a single daily transaction, with a $20,000 annual limit. The limits are designed to suppress currency speculation. What's much more significant is that those limits don't apply to businesses engaged in international trade -- meaning such US-based companies will be able to acquire all the yuan they need to settle foreign transactions that are not denominated in dollars.Until relatively recently , US customers could convert only a limited amount of yuan (also called renminbi) through a few Western banks, or inside China. But that started to change in July 2010, when Beijing approved the trading of yuan by foreigners in Hong Kong. Once that occurred, activity soared from zero to more than $400 million per day in a mere six months. The move to US-based trading was the logical next step, according to Li Xiaojing, general manager of BOC's New York branch. As Li told the Wall Street Journal, "We're preparing for the day when renminbi becomes fully convertible."Li added that his bank wants to become "the renminbi clearing center in America."That may or may not happen. What's important is that by stepping into the market now, the BOC is paving the way for China's three other big state-owned banks to step in as well. China Construction Bank Corp., Agricultural Bank of China Ltd., and Industrial and Commercial Bank of China are all expected to join BOC in competing for yuan-clearing services. This will add to the yuan's liquidity, though it's likely that unprepared US financial institutions will be shut out of the action.A New RealityThe US dollar is experiencing a decline as a reserve currency. In fact, the percentage of world currency reserves held in US dollars has declined from 73% in 2001 to 60% in mid-2010. (The European euro has also slipped, and now represents just 26% of global reserves.)While US officials have been more than willing to blame the dollar's declining reserve role on China's actions, it's important to note that other factors have also been at work. For one thing, there's not a finite pool of global capital, despite what central bankers the world over appear to believe. Economic growth creates new capital -- and the fact is that emerging economies have accounted for the bulk of recent growth. That means China (along with India, Brazil, and others) is putting more than its share into the increasing worldwide pool of capital -- and its contributions are being made in yuan.
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