Yuan

The Yuan renminbi (in Chinese « people’s currency » and according the ISO standard, its abbreviation is CNY for “Chinese Yuan), has been the national currency of China since the end of the XIXth century.

Only the Bank of China can issue the Yuan, but the currency is subject to the fixes exchange regime directly decided by the Chinese governmental authorities via an institution known in English as the “State Administration of Foreign Exchange”.

A nearly fixed parity (+/- 0.3%) with the American Dollar prevailed for a long time, but this parity was replaced in July 2005 by a Yuan peg to a currency basket (including the Euro in particular), the Dollar is still preponderant.

Since then, the Yuan was revalued several times, both against the Dollar and against the Euro, since it went from a parity of .0124 USD in 2006 to 0.14 Dollar in September 2008 (0.1030 Euro in September 2008, 0.1064 Euro in April 2009).

But in a worldwide economic crisis context that has as a consequence (decrease of the worldwide consumption) a 12% decrease of the 2008 Chinese trade surplus in comparison with that of 2007, the Bank of China has recently, and for the first time since 2005, had the will to make the Yuan decrease-a will (maybe only an announcement effect?) that has not been made in reality in significant proportions.

At the same time, the Chinese government relaxed its exchange control regulations. The exporting firms were recently authorized to keep their stakes in foreign currencies.

The Yuan dependence, and as a consequence of the entire Chinese economy, in relation to the Dollar, seems to be a major preoccupation subject for the Chinese authorities in the context of a drastic decrease of the American interest rates, the huge Chinese assets in American Treasury Bill that sharply lost since then their value.

As they tried to reduce this dependence at the beginning of 2009, the Chinese authorities established currency swaps (exchange between currencies) that represent 650 billion Yuan with six major commercial partners (Argentina, South Korea, Indonesia etc).

The emergence of the Yuan as a foreground currency will depend overall on a bigger flexibility of the Yuan against the other great currencies.