China and the Reserve Currency Question

China’s concern about its U.S. Dollar reserves is being amplified by the low returns of some of China’ investments in the U.S. which leads to a broader concern about how the current reserve system basically entails China lending to the U.S. at very low interest rates. A two-currency reserve system would potentially be even more unstable than the existing one, because of speculation moves in and out of the U.S. Dollar and the Euro depending on their return, increasing volatility. U.S. Policymakers have started to realize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the U.S. national interest. The U.S. has to consider initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. This chapter will examine four scenarios regarding the global currency regime of the future and the Chinese influence in this most important policy arena. It will focus on the U.S. Dollar decline as the Reserve Currency, on the Euro gaining strength slowly in a turbulent world, on the potential of the Renminbi to become a Reserve Currency, and on the future of the Super-Sovereign Reserve Currency, the IMF’s Special Drawing Rights (SDRs). Before that it will examine the role of the Renminbi in the Asian Financial Crisis in 1997 and its role in the global financial markets at that time and lessons learnt from the crisis. The crisis had significant macro-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries.CHINA; U.S.; EUROZONE; DOLLAR; EURO; SPECIAL DRAWING RIGHTS; RENMINBI

Reforming China’s Exchange Rate Policy

This paper is aimed at analysing the decision of the Chinese central bank to reform the exchange rate of the national currency and to gauge the effects of this change in regime on the Chinese economy and the world currency markets. Although many nations have been largely disappointed by the relatively small revaluation of 2%, it will be argued that moving away from the dollar-peg is a step in the right direction in moving to a floating exchange rate, and the reform should be expected to occur in two-stages over a longer time frame The paper focuses on those studies attempting to estimate the under-valuation of the Renminbi and the effects of the change in policy. To enable the reader to understand the degree of misalignment of the. Renminbi this paper will examine various factors that determine whether the currency is undervalued. This will then allow the review of the policy options available to the central bank for facilitating an appreciation and the potential effects of a regime change will be reported. The expected outcomes on the currencies, US treasuries and trade deficit will also be analysed and the study will find that, post-revaluation, the dollar depreciates, the Yen moves in line with the Renminbi and the Euro strengthens, as was expected. The implications for the U.S. treasury market, after a move to a currency basket, is that China will reduce their dollar holdings by selling treasuries, however the region will still remain a net-buyer.Renminbi, China, United States, Dollar, Euro and Yen

What is the Future Role of the Chinese Currency in Global Financial Markets?

China's economic and diplomatic ascendancy over the past decade has been nothing short of phenomenal in terms of world history. It has seen its influence on the world stage grow from being a bit part player at the start of the 20th century, when its territory sovereignty was encroached upon by the European colonial powers and Japan mounted a campaign of conquest, to being seen as the biggest strategic threat to American primacy in the global economy. This view of China as an economic threat has been reiterated recently by various key figures in the United States administration, with calls for a revaluation of China's currency in light of the huge trade deficit the United States has with China. The United States acted on both trade and financial fronts in order to urge Beijing to revalue; in the former, with the implementation of restrictive quotas on certain categories of textiles and garments, and heavy anti-dumping duties on Chinese made TV sets, shoes, furniture and socks, and in the latter with former Treasury Secretary John Snow and former Federal Reserve Chairman Alan Greenspan repeatedly urging Beijing to revalue or move to a flexible exchange rate regime. Although this paper will focus to an extent on the debate about China's valuation of its currency and its effects on the global economic imbalance, it is the aim of this author to attempt an examination of the role the Chinese currency has played in the recent past, its current effect on the global economy and the potential impacts it will have on financial markets in the future.China, Renminbi, Global Imbalances, Revaluation, Financial Crisis

United Kingdom Euro Scenarios Assessed

After 10 years of abstinence from the European Monetary Union, should the UK be seriously thinking about joining the Eurozone? Especially in view of the European Central Bank's improved reputation as a crisis manager in the wake of the financial crisis, could EMU represent a safe haven for the UK economy? Would it be wise for Britain to attach itself to the reserve currency Euro to avoid the perils of drifting alone on a storm-tossed open sea? These are big questions. They have been debated in the UK for a generation and have become relevant again during the current financial and economic crises. I will in this short paper assess three scenarios regarding the UK and the Euro - UK entry, EMU collapses before a UK entry, No UK entry and I will discuss the Eurozone view on UK membership.UK Economy, Eurozone, Euro, Sterling, European Central Bank

China and the Global Roles of Currencies

China’s concern about its U.S. Dollar reserves is being amplified by the low returns of some of China’ investments in the U.S. which leads to a broader concern about how the current reserve system basically entails China lending to the U.S. at very low interest rates. A two-currency reserve system would potentially be even more unstable than the existing one, because of speculation moves in and out of the U.S. Dollar and the Euro depending on their return, increasing volatility. U.S.à Policymakers have started to realize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the U.S. national interest. The U.S. has to consider initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. This paper will examine four scenarios regarding the global currency regime of the future and the Chinese influence in this most important policy arena. It will focus on the U.S. Dollar decline as the Reserve Currency, on the Euro gaining strength slowly in a turbulent world, on the potential of the Renminbi to become a Reserve Currency, and on the future of the Super-Sovereign Reserve Currency, the IMF’s Special Drawing Rights (SDRs). Before that it will examine the role of the Renminbi in the Asian Financial Crisis in 1997 and its role in the global financial markets at that time and lessons learnt from the crisis.à The crisis had significant macro-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries.Dollar, Euro, Special Drawing Rights, Renminbi, China, Eurozone, U.S.