Chinese citizen counting money amid the global economic crisis. The Chinese Premier expressed concern over the $1 trillion in US debt held by the Asian nation.
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Bank of China Opens for Renminbi Trade in U.S.
By CHRIS V. NICHOLSON
New York Times
Call it liberalization by a thousand cuts.
The Bank of China, one of the country’s main state-owned lenders, is now allowing American firms to trade in renminbi, another step in China’s effort to position the the renminbi on the world stage.
In July, China started a renminbi settlement system for cross-border trade in Hong Kong, but it placed limits on how much currency could be exchanged.
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.
The Chinese central bank bowed 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 exchange currency.
“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 renminbi per dollar.
With a forecast for high inflation in the expanding Chinese economy, an appreciating currency could help the country dampen so-called imported inflation by making foreign goods less expensive.
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 United States Federal Reserve has some concerned that the dollar’s value will continue to decline.
The Bank of China said in an announcement on the Web site of its New York branch that trading firms and individuals could now open accounts in renminbi, buying the currency from and selling it to the bank.
While the limits on personal accounts are $4,000 a day and $20,000 a year worth of renminbi, and those accounts are largely for the purposes of exchange and remittance, 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 was $181 billion last year, a 26 percent increase from the previous year, The imbalance is 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 China’s president, Hu Jintao.
Separately, the city of Shanghai said it was creating a new investment window, allowing qualified private equity firms to buy renminbi and invest in mainland companies. Reuters reported that the pilot project could grow to be worth $3 billion.
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