Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

Continue Reading

Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

Continue Reading

Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

Continue Reading

Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading

Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Categorized | Currencies

China’s RMB joins elite global reserve club


Posted on September 30, 2016

CHINESE WOMAN LOOKS AT CURRENCY...A Chinese woman looks at an exhibition of Chinese currency in Beijing, China, Thursday, Aug. 7, 2003. A South Korean finance official, in Manila for the ASEAN + 3 finance ministers' meeting, lashed out at China and Japan on Thursday for keeping their currencies lower than the free market might dictate. As China becomes an increasingly important exporter, it has faced calls to let its yuan, also known as the renminbi, strengthen against other currencies to avoid too much of a trade imbalance. (AP Photo/Str)©AP

China’s renminbi formally becomes a reserve currency on Saturday, the 67th anniversary of Communist party rule in China, reaching a milestone on its long march to international acceptance.

Government officials led by Zhou Xiaochuan, head of the People’s Bank of China, lobbied long and hard for the renminbi to be included in the International Monetary Fund’s special drawing rights — a reserve asset whose value was previously determined by a basket of just the dollar, euro, yen and pound.

    Mr Zhou’s determination that the renminbi join this elite group reflects a dual agenda — reducing the global dominance of the US dollar while also overcoming domestic opposition to currency reforms at home.

    While US economic output has declined from 22 per cent of the global total in 1990 to an expected 15 per cent by 2020, the greenback has retained its dominant position and “haven” status even in the wake of the global financial crisis. About 90 per cent of all currency trades involve the dollar, compared with 40 per cent for the euro and just 2 per cent for the renminbi.

    According to Chinese policymakers and their advisers, Mr Zhou used the prize of SDR inclusion to overcome resistance to controversial reforms aimed at making the renminbi’s own value more market-determined.

    “China is likely to push for a more prominent role for the SDR in global finance as a means to elevate its own currency’s prominence,” says Eswar Prasad, a professor at Cornell University and author of a forthcoming book on the renminbi.

    Beijing was one of the leading proponents of the World Bank’s debut issue of SDR-denominated bonds on the eve of September’s G20 summit in Hangzhou, while Chinese policy banks are reportedly considering SDR bond issues of their own.

    Both developments were foreshadowed by a policy paper issued by Mr Zhou during the depths of the global financial crisis. Published in March 2009, the paper argued that “the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system”.

    “Giving the SDR a more central role in global finance would allow the IMF to act as a global lender of last resort, reducing the reliance of the international monetary system on any single national currency or central bank,” adds Prof Prasad, a former head of the IMF’s China division.

    Mr Zhou almost stumbled at the final hurdle of his long campaign. In August 2015 he failed to communicate clearly a technical change aimed at giving the market a greater say in determining the renminbi’s “daily fix” against the dollar, spooking international investors.

    That was followed by an even worse outbreak of turbulence on China’s equity and currency markets in January, as the PBoC sought to emphasise the renminbi’s performance against a basket of international currencies rather than just the dollar.

    After rising almost 30 per cent in the ten years to January 2014, when $1 bought just six renminbi, the redback has since retreated more than 10 per cent to Rmb6.67 to the dollar. Donald Trump alluded to this recent decline in Monday’s presidential debate against Hillary Clinton, in which he highlighted China’s alleged “manipulation” of the renminbi.

    The return of Mao: a new threat to China’s politics

    Visitors take a picture in front of the statue of Chairman Mao Zedong at the central square of his hometown Shaoshan. In their hands smaller sized statues they bought at a shop in Shaoshan.

    The dictator is enjoying a surge of popularity amid an age of growing inequality. But the rise of a neo-Maoist movement threatens the stability of China’s political system

    But Chen Long, China economist at Gavekal Dragonomics, notes that for most investo—s – and even the US government — the PBoC’s “gradual and managed depreciation of the renminbi is a non-story right now”.

    The Chinese economy’s better than expected performance over recent quarters and the UK’s decision to leave the EU have deflected international intention from the PBoC’s earlier policy errors, allowing for a smooth run-up to this weekend’s official inclusion in the SDR.

    The only better present Mr Zhou could hope for is an electoral triumph next month for Mr Trump. The Republican nominee has said that international investors might be willing to accept a haircut on their US government debt, a move that could hasten the reordering of the global currency order that Beijing has long sought.