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Bank of China Prepares International Yuan / Renminbi

Bank of China Prepares International Yuan / Renminbi by Jordan at Investing Blog

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The Bank of China, one of many Chinese government owned banking entities, will now allow United States citizens to open accounts…in Renminbi.

The decision to allow international ownership of Chinese banking accounts is interesting, to say the least. For one, it follows very closely to a recent decision by the Chinese central bank to allow appreciation of 5% of the yuan’s value against the dollar. Such appreciation is significant, since the yuan rose by only 3.2% in 2010.

Politicking?

The question that always has to be asked is “Why?” China has benefited greatly from an undervalued yuan/renminbi and a hardworking populace that keep the economic wheels turning, so allowing the yuan to appreciate would put it at a disadvantage or, at least, not as much of an advantage.

Next week, officials from the US and Chinese Governments will meet to discuss economic policy. Following open criticism from Timothy Geithner, it isn’t much of a surprise to see very large monetary policy decisions being made in the week leading to such an important meeting. However, it is surprising to see long-term, institutional changes that aren’t just fly-by-night.

China isn’t running an ol’ pump and dump, at least that’s not how it seems.

Preface to Further Investment?

The Chinese government guides their public surplus and sovereign wealth fund with mastery, snapping up international assets of importance (read: oil, steel, iron, mining companies, etc) and using the proceeds of the business to dilute rising commodities prices, or even better, using the commodities in the manufacture of export goods.

Allowing the Renminbi to appreciate puts China in a solid position to:

1. Buy up foreign assets, particularly those in the United States

2. Decrease its commodity costs, most notably oil and copper.

So what is it, folks?

Why is China getting aggressive on its currency? Is it appealing for more IMF power? Looking toward further international investment? Hedging against rising commodity prices?

Or is it all just one more political trick?

About Jordan

Jordan is the web master of www.investingblog.org, a site dedicated to skillful investing, news and recent trends. You can read the original article here.

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