During the two decades between World Wars I and II, for example, the new entrant, the dollar, had roughly the same weight in central-bank reserves as the British pound, which had been the dominant global currency for mre than a century following the Napoleonic Wars in the early s. So, what is wrong with three world currencies — the euro, the yuan, and the dollar — sharing the spotlight?
Nothing, except that neither markets nor policymakers seem remotely prepared for such a transition. US government borrowing rates would almost certainly be affected, though the really big impact might fall on corporate borrowers, especially small and medium-size firms.
We know it's a hassle to switch browsers but we want your experience with CNA to be fast, secure and the best it can possibly be. To continue, upgrade to a supported browser or, for the finest experience, download the mobile app. Main navigation Top Stories. Bookmark Bookmark Share. Close Top Stories. Kenneth Rogoff. US one hundred dollar notes are seen in this picture illustration taken in Seoul on Feb 7, READ: Commentary: US-China ties are set to worsen, before they get better US government borrowing rates would almost certainly be affected, though the really big impact might fall on corporate borrowers, especially small and medium-size firms.
A stronger yuan makes Chinese goods relatively more expensive to buyers overseas, and has spurred concerns about the competitiveness of Chinese exports — a major contributor to national economic growth. The Chinese yuan traded little changed against the U.
That marked the second-straight day of weaker fixings, reversing six straight trading days of stronger fixings since May 24, according to data from Wind Information. The PBOC has tried to allow the market to play a greater role in deter mining the yuan's exchange rate.
The hike forces banks to retain more of their foreign currency holdings, reducing the amount that could be used to influence foreign exchange rates.
It is the first such hike in 14 years since the previous change in May — before the financial crisis — economists pointed out. Analysts said the exact dollar amount is less significant than the central bank's message that the yuan will not move in a single direction of continued strengthening against the U.
He pointed out the size of the adjustment is relatively large, and said it represents a form of targeted monetary policy tightening. The ratio increase will limit speculative activity since financial institutions need to keep more money in their reserves, Xu said. Buffett disciple Guy Spier names two stocks that give him a foothold in China.
Chinese tech giants Tencent and Baidu are set to report earnings. Here's what analysts expect. Treasuries, which helps the U. On the other hand, the low yuan makes U.
As noted earlier, the undervalued yuan has also led to the permanent transfer of hundreds of thousands of manufacturing jobs out of the U. A substantial and abrupt revaluation in the yuan, while unlikely, would render Chinese exports uncompetitive.
Although the flood of cheap imports into the U. Yuan revaluation may do little to stem the exodus of U. Mitigating Factors and Glimmers of Hope. There are some mitigating factors and glimmers of hope on the issue of yuan revaluation. A number of analysts maintain that one reason for the huge increase in U. Specifically, a significant proportion of these imports are from multinational companies based in China that use facilities located in the nation as the final assembly point for their products.
Many of these companies have moved their production facilities from higher-cost nations such as Japan and Taiwan to China. Finally, concerns that China may dump its holdings of U. Treasuries in the event of yuan revaluation seem largely overblown. The Bottom Line. Little is to be gained by U. A trade war would create global financial turmoil and wreak havoc on investment portfolios, apart from reining in global economic growth and perhaps even triggering a recession.
But that scary scenario is quite unlikely, even if the rhetoric is ratcheted up by both sides. The most likely outcome going forward is one of gradual appreciation of the yuan, accompanied by measured dismantling of currency controls as China moves toward a freely convertible currency.
So it may be a few years before the yuan terminates its tango with the greenback and heads out on its own. Monetary Policy. Treasury Bonds. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
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