Oxstones Investment Club™By CHRIS V. NICHOLSON, NY Times,
Bank of China, one of the country’s main state-owned lenders, is now allowing American clients to open accounts in renminbi and trade in the mainland’s currency, another step in China’s introduction of the renminbi to the world stage.
In July, the country inaugurated a renminbi settlement scheme for cross- border trade in Hong Kong, but the currency is not yet fully convertible, meaning there are still limits on how much can be exchanged.
The Chinese central bank ceded to international pressure last summer and agreed to make its currency more flexible; the renminbi is now allowed to move as much as 0.5 percent each day. At the same time, the country is cautiously pursuing a strategy of making the renminbi into an international means of exchange.
”China sees the global financial system as too U.S.-centric and dollar dependent,” said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. ”That created issues during the financial crisis.”
Now, he said, the country is trying to take a step away from that dependence. ”Conditions are in place for sustained yuan appreciation against the U.S. dollar,” he said, predicting that it would increase by 6 percent this year to 6.20 per dollar.
And with high inflation forecast for the hot Chinese economy, an appreciating currency could help the country dampen so-called imported inflation by making foreign goods cost relatively less.
With the Bank of China move, China is promoting the renminbi to Americans at a time when loose monetary policy on the part of the U.S. Federal Reserve has some concerned that the dollar’s value will continue to decline.
Bank of China said in an announcement on the Web site of its New York branch that customers could now open accounts in the currency, buying renminbi from and selling it to the lender.
Currency trading in the renminbi was already possible at other banks, but the move by a state-owned lender signals a shift in official policy.
While the trading limits on personal accounts are $4,000 per day and $20,000 per year, the bank is also soliciting business from trading firms.
China’s decision to keep the renminbi effectively pegged against the dollar at an exchange rate that favors its exports has long been a source of contention between Washington and Beijing. China’s trade surplus with the United States came to $181 billion last year, a 26 percent increase from the previous year, with the imbalance likely to put further pressure on the exchange rate.
That said, the renminbi hit a new high of 6.6128 against the dollar on Wednesday, an auspicious prelude to a visit to Washington next week by President Hu Jintao of China.
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