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18 Nov 2022  (719 Views) 
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China


Chinese RMB as a reserve currency
This is how I see the Chinese RMB becoming a reserve currency:

1. China buys raw materials from other countries and pays in RMB.
2. The exporting country keeps the RMB and use it to pay for products from China. 
3. The unused RMB can be kept with the Chinese banking system to earn an attractive interest rate.
4. The RMB can be converted to other currencies, e.g. USD, EUR, JPY, to buy products from other countries. 
5. Foreign countries can borrow from China in RMB over several years at the market rate or special rate of interest to build their infrastructure, and repay the loan and interest using their raw material and other exports to China.
6. The RMB and be used in the same way that the USD is now being used. The RMB will become an another reserve currency.
7. The advantage of using RMB is that China is not printing RMB in the same way that American prints the USD to fund their trade deficits. The RMB should be more stable over the long term.

I expect the RMB to become more attractive, as a reserve currency, to other countries over the next few years. The hegemony of the USD will be gone soon.

Tan Kin Lian

 


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