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China Allows Yuan Trade Settlement, Offers Tax Breaks

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July 02, 2009 – Comments (9) | RELATED TICKERS: UDN

Here's an interesting piece of news that I came across on Bloomberg this morning:

China Allows Yuan Trade Settlement, Offers Tax Breaks

In a challenge to the U.S. dollar's reserve currency status, China is promoting greater use of its own currency, the yuan, in international trade and finance.  China's even going as far as to provide tax rebates for exports settled in yuan.  Also, The People's Bank of China has agreed to provide 650 billion yuan, around $95 billion U.S. dollars, to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through currency-swaps to increase the usage of its currency in trade.  China and Brazil are in the process of studying a proposal to move away from the dollar to settle trade.

A Chinese Foreign Ministry official stated today that he hoped the U.S. dollar would remain stable, but actions speak louder than words.

Deej

9 Comments – Post Your Own

#1) On July 02, 2009 at 6:46 AM, kaskoosek (94.82) wrote:

I do not trust the Yuan.

 

I think that ultimately all currencies will falter against commodities, due to corrupt and inept government policies.

 

What is the difference between the Chinese and American government???

Nothing....

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#2) On July 02, 2009 at 7:13 AM, portefeuille (99.43) wrote:

Have a look at this video starting at 4:02/09:06 for one aspect of the CNYUSD exchange rate.












 

A chart of the exchange rate from yahoo finance.


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#3) On July 02, 2009 at 9:22 AM, GNUBEE (26.94) wrote:

"mercantilistic trading policies of surplus countries"- interesting.

"maybe we have already seen hyperinflation"- Interesting

"Sov Wealth Funds are just quantitative easing programs"- interesting

Concepts I have not heard on a major news network yet.

Thanks Port

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#4) On July 02, 2009 at 9:31 AM, XMFSinchiruna (28.01) wrote:

kaskoosek

What is the difference between the Chinese and American government???

Indebtedness

Deej - thanks for posting, the tax breaks angle is an interesting one. The remainder of the news, involving the currency swaps, etc. is old news. :)

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#5) On July 02, 2009 at 9:35 AM, portefeuille (99.43) wrote:

I should have included more data. Remember this from July 2005.

China revalues yuan


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#6) On July 02, 2009 at 9:46 AM, tumachar (74.29) wrote:

Can you go back to 1970-1980 in your data. It will show how china devalued Yuan from 2 for 1 dolllar to 8 for 1 dollar.

Same happened in India. in 1989 Indian Re was 16 to a Dollar. People are forgetting these things when they say USD will be devaluated. Global capital will try to take advantage of labour arbitrage where it exists. In late 1990s, IMF forced developing countries to devalue the currency, open up country for investment, as condition for loans. 

The devaluation multiplied the already existing labour arbitrage oppurtunities.  Once capital flowed there, US tax laws allowed the capital to remain there or flow out faster.

The late 1980s balance of payments existed for India due to Oil import. Same may be true of other developing countries. The countries would like nothing more than to able to settle largest imports in their local currency, not because they want to be reserve currenty, but because they will hate to be in same situation as late 80's again.

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#7) On July 02, 2009 at 9:48 AM, XMFSinchiruna (28.01) wrote:

portefeuille

That WAS a very interesting video. The guest is fun to watch and obviously a brilliant mind. Thanks for posting.

His observations of the $/Yuan lock-up are well received, and he may have provided some insight into part of the story behind oil's big collapse.

I of course disagree with his final statements about hyperinflation having already occured. That 40% slide in the usdx was just the beginning, since it all occured before actual quantitative easing and trillions of dollars in liquidity injections were implemented. These are the fiscal policy decisions that are placing the world on edge and causing a crisis of confidence with the USD. When the pound sterling lost its status as the primary reserve currency of the world, the currency proceeded to lose on the order of 90% of its value to the major world currencies of the time. I anticipate similar losses for the USD.

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#8) On July 02, 2009 at 10:00 AM, portefeuille (99.43) wrote:

That WAS a very interesting video. The guest is fun to watch and obviously a brilliant mind. Thanks for posting.

Glad you liked it. Have a look at my Hugh Hendry library ...

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#9) On July 02, 2009 at 10:05 AM, portefeuille (99.43) wrote:

For comments on the U.S. dollar have a look at the video in comment #3 in the library starting at 2:30/9:23.

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