International Business - New Move to Make Yuan a Global Currency

Summary

After some pressure from its international trading partners, the Chinese government is allowing trade in its currency in the U.S. for the first time. For the longest, trade in yuan has been done only in mainland China and recently allowed in Hong Kong. Many see this action as China finally recognizing its own global, economic power and understanding how that power can be used to make their currency fully convertible. There is hope that, due to this decision, China’s trade will see great expansion just as it did when the government allowed its currency to be used in trading done in Hong Kong. At the same time, there are those who believe that any future growth may be stunted by regulations that were recently passed by the Hong Kong Monetary Authority. In the end, there is still skepticism on what this change really means and what effect it will truly have on the international economy.

Discussion

With all the talk of how the dollar is dropping in value and how China owns a good portion of American debt, my first response to the title of this article alone was one of alarm. I assumed that this article would be announcing how China was implementing a plan where all international trade with their country would eventually be done using only their currency. Armed with only this idea, I expected this piece would be a tutorial on how I, as an American consumer, could plan for the worst once all business was forced to be done in yuan.

After the first cursory reading, my mind was put at ease only slightly. There were still details that I’d missed. So after going through the article a second time I saw that this was something that was being encouraged by the U.S. as well as many of China’s other international trade partners. The argument from the U.S. side was that the actual amount of Chinese-held U.S. debt was being exaggerated by an undervalued yuan. That in time, by trading globally, the yuan would be put on equal footing with the dollar, euro and yen. I would think that the supposed value of any currency would be considered when tabulating the amount of another country’s debt. I wonder what effect this change will truly have on how U.S. debt is calculated. In the end, I would imagine it would still be a considerable sum.

As always, there are those who are skeptical of any new development. It was pointed out that China’s decision to open up its trade practices was made conveniently before President Hu’s scheduled visit to the U.S. Because this event would draw attention to the restrictions placed on Chinese trade by its government, I believe it is being suggested that this choice was made in order to look better to the international community.