Thursday, May 2, 2013

RMB as Reserve-Currency...



Article;

Why Doing Business in China Takes a Lot of Cash


Comment;

The highest denomination is rmb 100 which is near to the $100 highest denomination in the US but people hold five-times more cash in China than in the US. It means money supply is higher in China than the US. High money-supply means a weaker currency. It (China) has kept money-supply high in order to gain from  cheap currency and cheap exports. This is what the US objects "an artficially low exchange rate and low value of money to gain advantage from cheap exports." China is expected to overtake the US in 2018, so by that standard we can expect the rmb-dollar exchange to equalize near that period. Meanwhile we are going to witness an appreciation in rmb during this period and a debate to include rmb as a reserve currency like dollar. Chinese interest rate are lower than the Indian rates it means it is opting for a loose monetary policy to gain advantage in exports even when its main trading partners are facing recession and weak demand. If China wants rmb to get the status of reserve currency it needs to let its currency float near to the value of dollar.

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