Yuan: A 360 Degree Analysis

By Shiv Mehta

The Chinese yuan (Renminbi) is the currency of China, with the currency code CNY and symbol ¥. In early 2014, the CNY was the seventh most traded currency in the world. According to SWIFT's report, it ranked fifth as the most traded currency at 2.2% of SWIFT payment behind JPY (2.7%),GBP (7.9%), EUR (28.3%) and USD (44.6%) by the end of 2014. In February 2015, RMB was the second largest currency to be used in trade financing, and was ranked ninth in foreign currency trading.

As per a report published by Deutsche Bank (DB), the internationalization of China’s Renminbi (RMB) has been described as the most significant global financial markets development since the formation of the euro. In recent years, China has demonstrated concentrated efforts to promote the use of RMB in cross-border trade, financing and foreign direct investment (FDI), especially in Hong Kong, Taiwan and Singapore.

The RMB internationalization accelerated in 2009 when China established the dim sum bond market and expanded the Cross-Border Trade RMB Settlement Pilot Project, facilitating pools of offshore RMB liquidity. The below chart shows increases in Cross-border RMB settlement in the period from Jan 2012 to Jan 2014.

U.S. Dollar Vs. Chinese Yuan

The most popular China Yuan Renminbi exchange rate is the USD:CNY. During the period from 1997 to 2005, the China used conventional dollar peg system, and the Chinese yuan was valued at approximately 8.3 CNY per U.S. dollar. In 2005, the Chinese government transitioned to a managed floating rate system and revalued the CNY to 8.1 per USD. Under this system, the yuan's value is determined by using basket of currencies, and it is believed that the highest weightage is given to U.S. Dollar. The below chart shows the correlation between the dollar and the yuan.

As part China's efforts to internationalize the yuan, the Chinese government put forth a pilot program to regulate country's international trade with countries such as Hong Kong, Macao and ASEAN countries in 2009. The plan was initiated in only 5 provinces of China: Shanghai, Guangzhou, Zhuhai, Dongghuan and Shenzen. Since then, the program has been expanded to other provinces and allowed trade with rest of the world. The Chinese government has taken more measures to promote the RMB as a reserve currency by signing agreements with Australia, Japan, Thailand, Russia, and Vietnam to allow for direct currency trade, instead of the erstwhile conversion to the U.S. dollar.

Recent Chinese Yuan Devaluation

The People's Bank of China (PBOC) devalued the yuan by nearly 2 percent on Aug. 11. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports. The USDCNY traded at 6.39 CNY on Friday August 14, according to interbank foreign exchange market quotes. The Chinese Yuan averaged 6.94 from 1981 until 2015, reaching an all-time high of 8.73 in January of 1994.

Economists and currency traders said it is an improvement over the previous system since opening rates are more explicitly linked to the prior day’s closing level. As per the International Monetary Fund (IMF), China’s currency is not undervalued despite this devaluation. However, China, the world’s second-largest economy, still needs to adopt a fully market-based exchange-rate system within three years. It is believed that this currency devaluation would support China’s dwindling exports and sluggish economy which grew by 7% in second quarter. China has set an annual target of about 7% growth while the IMF projects annual growth of 6.8%.

Goldman Sachs said the yuan devaluation “has been important for commodity markets and they believe it signals that global macro conditions have changed”. They also said China had joined a “negative feedback loop” that is pushing commodity prices down as growth slows and businesses and households, nervous about the future, reduce their borrowing and spending.

China Yuan and the Russian Ruble

Trade between Russia and China has grown by leaps and bounds as noted by the increase in bilateral trade from USD 15.8 billion in 2003 to USD 95.3 billion in 2014. According to forecasts, bilateral commerce could grow up to $100 billion in 2015 and if the two countries continue to nurture the right conditions for trade investment growth, it is likely to reach $200 billion by 2020.

The two countries are expected to reduce their dependence on the US dollar in bilateral trade in favor of their own currencies, calling attention to the importance of their economic relationship. Russia, which is facing financial restrictions by western countries on account of Ukraine crises and dwindled economy conditions due to decline in oil prices, is expected to increase its trade with China and that is also in CNY. This is evident by the fact that Moscow Exchange’s turnover in the Chinese Renminbi grew 700% in 2014. From 17 March the Moscow Exchange has started trading in a futures contract on the currency pair Chinese Renminbi – Russian Ruble.

Is $30 a Barrel Oil Coming Soon? --------------------------- translate------

By Dan Moskowitz

Reading and watching analysts can make your head spin. Many have changed their opinion on oil countless times. However, there are many analysts that have remained steadfast on the bull or bear side. Will the price of oil continue to fall and could it drop to $30 a barrel? Let’s find out.

Supply and Demand

When it comes to oil, all you need to do is look at supply and demand. There are other factors at play, such as central bank action and the U.S. dollar, but supply and demand will always win out as the driving forces. As far as supply goes, it’s massive. Saudi Arabia, Russia and the United States have all been producing at breakneck paces. There has also been speculation of rising supplies in Iran. In the United States, U.S. oil production is the highest it has been since the 1970s. There are two reasons for this: cheaper credit facilities post-2008 and technological advancements. 

Everyone talks about supply as the key contributor to the slide in oil prices. That’s because there’s concrete information available and nobody will put themselves at risk of being called out for being wrong on the demand side. While supply plays a big role, the demand side of the equation is being overlooked in a big way. The first example is that Saudi Arabia’s oil exports to China just hit a five-month low. And China is the key factor here.

China is the second-largest economy in the world, but its relentless gross domestic product (GDP) growth over the past 20 years is beginning to wane. Because of this slowing GDP growth, the Chinese government has tried everything to keep the engine running and its economic locomotive at full speed. In order to do this, it has encouraged excessive leverage and created what is likely to be the biggest economic bubble in history. Put simply, demand for oil coming from China has slowed because the real economy is not soaring as it has in the past.

Demand isn’t any better in the United States. The price of oil has largely been driven by central bank policies. In fact, central banks around the world have created numerous bubbles. When these policies begin to fail, you will see all these bubbles deflate. Greece is far from the biggest economy in the world, but it’s a first sign that central banks can’t save everyone and everything all of the time.

Global Deflation

On somewhat of a side note, you can also look at the oil rig count as an indicator for oil demand. The crude oil rig count fell in 30 of the last 32 weeks and is down 59% over last year. Why is demand low? The answer to that question can be summed up in two words: global deflation. Why do you think central banks have been so active over the past several years? It has been to prevent deflation. This can be effective in the short term, but it won’t work over the long haul.

The Frackers

The plunging price of oil will have a devastating impact on the fracking industry. Some of these companies have taken on too much leverage to be able to survive with oil below $55. They might be able to buy some time, but you’re going to see outright failures. Also keep in mind that frackers make up approximately 20% of the junk bond market, and that 60% of junk bonds are in energy. This is bad news for junk bonds.

Principios para triunfar en política

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EL POLÍTICO. Principios Básicos para Triunfar en Política” significa eso, que si no eres político este libro no es para ti? Claro que no! El señor José Martínez Ruiz Azorín con su obra nos da algunas pautas para ser exitosos en cualquier ámbito de nuestras vidas, ya sea laboral o profesional.

I. HA DE TENER FORTALEZA

·   Cuerpo sano y fuerte.

·  Se requiere una naturaleza muy firme y  muy segura.

·  Dormir bien.

·  No es el mucho comer, sino el bien digerir.

·  Amar el campo.

· Mézclese en la vida menuda de los labriegos y aprenda en ella las necesidades, dolores y ansias de la nación.

                        II. ARTE EN EL VESTIR

·   Está en la elegancia de nuestros movimientos, modo de andar, saludar, levantarse, sentarse...

·   Elegancia = Simplicidad.

·   El calzado merece mención especial.

·   Ropa blanca, inmaculada.

·    Sencillez y Naturalidad.

III.            NO PRODIGIARSE

·  Lo que mucho se ve, se estima poco.

· ¿Qué vale más: Ser llano, corriente, hablar con todos, entrar con todos en conversación a cada momento, o mostrarse solo  de cuando en cuando con una cortesía perfecta?

IV.             TENGA LA VIRTUD DE LA EUBOLIA

·   Consiste en  ser discreto de lengua, en ser cauto, en ser reservado, en no decir sino lo que conviene decir.

·  No descubrir todos sus pensamientos.

·  Mantener la expectativa.

V.                SEPA DESENTENDERSE

·        Sepa el político en tales circunstancias desentenderse en algún momento de esta corte de admiradores y amigos que le rodean; a su alrededor ellos han formado una atmosfera, una muralla que le impide ver con normalidad en su verdad, el pueblo o país que visita.

VI.             REMEDIAR LA INADVERTENCIA

·  Corregir a tiempo la inadvertencia.

·  No es el necio el que hace la necedad, sino el que, hecha, no la sabe enmendar.

·        La pasión, la ira, el despecho, pueden llevarnos a extremos que no estén de acuerdo con nuestra ecuanimidad.

VII.         NO TENER IMPACIENCIA

·  El político no debe dejarse arrastrar por el impulso general.

·  Si queremos vivir bien y ahorrarnos muchos disgustos, achaques y aun enfermedades debemos tomar con flema  y sosiego nuestras cosas.

·        Cuando tengamos que responder a un agravio, seamos cautos y dejemos pasar un buen lapso de tiempo.

VIII.      CONSERVARSE EN EL FIEL

·  No pierda nunca el sentido del equilibrio.

·  Si tiene tales ideas o doctrinas en pugna con las que dominan, bien está que, discreta y cautamente las haga prevalecer en el gobierno; pero no se olvide de navegar de cuando en cuando con la corriente.
  

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