Tag: chinese yuan

The Quality of China’s Yuan Deteriorates – In One Chart

During the past year, the Chinese yuan (CNY) has shed a bit more than 7 percent of its value against the greenback. That’s only one aspect of the CNY’s weakness. Another concerns the quality of the CNY.

As Jerry Jordan pointed out recently at the Cato Institute’s 34th Annual Monetary Conference, a central bank is a balance sheet. Among other things, the People’s Bank of China’s balance sheet contains information that indicates the quality of the CNY.

While the monetary liabilities (read: monetary base) of the bank have remained rather constant since late 2014, their composition has changed. The assets, which are the counterparts to the monetary liabilities, have changed dramatically. The net foreign assets have fallen and been replaced by net domestic assets. In consequence, the quality of the CNY has deteriorated. In this light, the recent tightening of China’s capital controls on outbound foreign investment is nothing more than an attempt to preserve foreign exchange and reverse the deterioration in the CNY’s quality.  

What’s A Dollar Worth?

It’s not just Americans worried about the flood of dollars from the Fed.  The Chinese and now the Malaysians also are wondering if they should keep dealing in greenbacks.

Reports the Wall Street Journal:

Malaysia’s prime minister said China and his country are considering conducting their trade in Chinese yuan and Malaysian ringgit, joining a growing number of nations thinking of phasing out the dollar.

“We can consider whether we can use local currencies to facilitate trade financing between our two countries,” Malaysian Prime Minister Najib Abdul Razak told reporters at a briefing Wednesday after meeting with China’s premier, Wen Jiabao.

“What worries us is that the [U.S.] deficit is being financed by printing more money,” Mr. Najib said. “That is what is happening. The Treasury in the United States is printing more notes.”

The dollar won’t easily be displaced as the world’s principal reserve currency.  But Washington appears to be doing everything possible to hasten that day.

Perhaps Americans should consider keeping their wealth in yuan or even ringgits.  At least they might retain their value even as the Fed and Treasury attempt to inflate and spend the U.S. economy into oblivion.