Trade Currency and Reserve Currency- Group 6- EBBA6B
Transcript of Trade Currency and Reserve Currency- Group 6- EBBA6B
TRADE CURRENCY AND RESERVE CURRENCY:THE INTERNATIONLIZATION OFF THE YUAN
GROUP 6:1. Vũ Khánh Linh2. Nguyễn Hùng Long3. Trần Thị Hương Quỳnh4. Nguyễn Tuấn Hùng
OUTLINE
I. Trade currency, reserve currency and internationalization.
II. Why does China want to internationlize the Yuan?
III. How to meet up with the criteria of the SDR basket inclusion?
IV. What are the impacts of the yuan on Vietnam?
V. Should the Yuan become the world new reserve currency?
I, WHAT DO TRADE CURRENCY, RESERVE CURRENCY AND INTERNATIONLIZATION MEAN?
Reserve Currency Trade Currency
Similarities
• Generally come from countries with strong
economic and political situation
• Widely accepted around the world as a
form of payment for goods and services
• 5 trade currencies in SDR Basket: U.S. dollar
(USD), European Euro (EU), Japanese yen
(JPY), British pound (GBP) and Chinese
Yuan (CNY)
Reserve Currency Trade Currency
Differences
• Held by central banks, major financial institutions as a means to pay off international debt
• Used to price large percentage of commodities: oil, gas,…
• World’s reserve currency: US Dollar
US Dollar
• is the worldforeign reserve currency
• used in 70% of international trade transactions
December 1st,2015
IMF added Chinese Yuan into the SDR basket.
October 1st,2016
Chinese Yuan’s inclusion in the SDR basket takes effect.
Internationalization
To make something be come international
II, WHY DOES CHINA WANT TO INTERNATIONALIZE THE YUAN ?
1. Gain Global Prestige
The SDR status is the recognition of China’s rise
2. Set Up A Multi-Polar World
A reduction in regulations on capital flows accompanies with the Yuan being in the SDR will help to internationalize the yuan.
=> Create a more open capital market to meet up with domestic firms’ financing needs and cut their borrowing costs.
3.Set Up A Multi-Polar World: Getting closer to set up a “multi-polar” world with the Yuan’s reserve currency status.
4. Become The Price Setter: Increasing use of the Yuan in international trades along with its reserve currency status help to make Yuan a pricing currency.
5. Raise The Yuan Demand
An inclusion in the SDR Basket and the automatic acknowledgment of ‘Official Reserve Currency’ status will attract people to invest in the Yuan
III, HOW DID THEY GET THERE ?
“The country must be a major exporter, and the currency must be freely usable”
Since 2009
1, China’s one of world's largest exporters
2, Increasing international use and trading :
•2009, China bought $50 billion IMF Bonds, agreed to lend the Yuan the central banks of South Korea, Malaysia, Indonesia and Belarus
• Decided to set up 12 more Free Trade Zones after the Shanghai FTZ in 2013
- December 2015, China initiated the Asian Infrastructure and Investment Bank
- Open offshore Yuancenters
IV, WHAT ARE THE IMPACTS OF THE YUAN ON VIETNAM?
Import and Export:
Negative effect
Viet Nam will have to import materials from China at higher costs
Positive effect
The higher price of exports from China, the less competitiveness it will be
• Influence on reserving foreign exchange: An encouraging strike for Vietnam central bank to add more Yuan in the reserve currency basket.
• Central banks and international investors will be buying more government bonds and other properties on papers which is denominated by Yuan
V, SHOULD THE YUAN BECOME THE WORLD NEW RESERVE CURRENCY?
1. US and Europebrushed off the idea
2. Seven-tenths of the international yuan transactions are done in Hong Kong
3. The fluctuation in the yuan use
4.It is not clear that the Chinese government will be willing to suffer the unpleasant side effects that come with being a global reserve currency or not
5. China fiscal practices are much less transparent that those in the West
6. China desires a lower valuation of its currency to promote export