Will the Renminbi Rule? -- Finance & Development, March 2012 Will the Renminbi Rule? IMF podcast: China Rising The Chinese currency is on track to become more important globally, but is unlikely to challenge the dollar anytime soon THE Chinese economy is now the world’s second largest and a key driver of global growth. It amounts to between 10 percent and 15 percent of world GDP (depending on how it is measured) and, in 2011, accounted for about one-quarter of world GDP growth. But among the currencies of the six largest economies in the world, China’s renminbi is the only one that is not traded easily and accepted worldwide—that is, it is not a hard currency. China’s government has taken steps recently to promote the international use of the renminbi, even though it has not been willing to open up its economy to the free flow of capital and allow its exchange rate to be flexible. Nevertheless, given the sheer size of China’s economy and its rising shares of global output and trade, these steps portend a rising role for the renminbi in international finance and trade.

But a compelling question is whether the renminbi’s global stature will rise to match that of the Chinese economy—perhaps approaching the U.S. dollar. The answer to that question depends on three related but distinct concepts about the currency: •Internationalization: its use in denominating and settling cross-border trade and financial transactions—that is, as an international medium of exchange; •Capital account convertibility: how much a country restricts inflows and outflows of financial capital—a fully open capital account has no restrictions; and •Reserve currency: whether it is held by foreign central banks as protection against balance of payments crises. A country’s currency can be used internationally even if its capital account is not fully open. And even in the absence of restrictions on capital flows, a country’s currency may be used little or not at all internationally. But both international use and an open capital account are necessary for a currency to become an international reserve currency. This article evaluates the current state of and prospects for the renminbi in each of these three dimensions in terms of the balance and sustainability of China’s economic development and the associated implications for the global monetary system.

Becoming a reserve currency Given China’s size and growth prospects, it is widely seen as inevitable that the renminbi will eventually become a reserve currency. To gauge the likelihood and timing, it is necessary to consider the typical attributes of a reserve currency and evaluate China’s progress in each of these dimensions. The factors that generally affect a currency’s reserve status include •Economic size: A country’s GDP and its shares of global trade and finance are important, although not crucial, determinants of a country’s reserve currency status. •Macroeconomic policies: Investors in a country’s sovereign assets must have faith in the ability of its economic policies, especially its commitment to low inflation and sustainable public debt, to protect the value of the currency from erosion. •Flexible exchange rate: Reserve currencies are typically traded freely and their external value is market determined, although this does not entirely preclude central bank intervention in foreign exchange markets. An open capital account is not synonymous with a freely floating exchange rate. •Open capital account: Reserves must be acceptable as payments to a country’s trade and financial partners, which requires that the currency be easily tradable in global financial markets.

This is difficult if a country imposes restrictions on capital flows and if its foreign exchange markets are thin and subject to the government’s direct control. •Financial market development: A country must have deep and liquid financial markets—that is, markets, especially in government bonds, with many buyers and sellers to provide “safe” assets that can be held by international investors and central banks from other countries. Turnover (trading volume) in these bond markets, which is a measure of liquidity, is also important. There is no hard-and-fast rule that dictates which of these factors are important or even essential. For instance, the Swiss franc is a global reserve currency even though Switzerland’s shares of global GDP and trade are small. Moreover, many major reserve currency economies—the euro area, Japan, and the United States, for example—have large and rising public debt, which casts doubt on their macroeconomic stability but has not affected their currencies’ reserve status, at least so far. Some analysts have in fact extrapolated from the U.S. experience to argue that China will have to run large current account deficits if it wants to provide reserve assets to the rest of the world. But that is not the case.

The currencies of Japan and Switzerland have achieved reserve status despite those countries’ consistent current account surpluses. How the renminbi fits in China’s size and importance in world trade are well known. It now accounts for 10 percent of global trade in goods, up from 4 percent a decade ago, and is extensively connected with other economies through trade linkages. Whether China’s fiscal and monetary policies anchor long-run inflation expectations and foster macroeconomic stability is an open question. China has a moderate level of explicit public debt and a small government budget deficit relative to the major reserve currency economies. Moreover, despite its tightly managed exchange rate, which has compromised the independence of monetary policy, China has had a relatively stable inflation rate in the recent past. The next question is whether China is opening up its capital account. Although China still has extensive capital controls in place, they are being selectively and cautiously dismantled. As a result, gross inflows have risen sharply over the past decade, reflecting China’s attractiveness as a destination for foreign investment. Outflows other than foreign exchange reserves, including investments abroad by Chinese corporations and institutional investors such as pension funds, have also grown substantially, albeit from a low base.

In short, China’s capital account is becoming increasingly open in actual terms, although even by this measure it remains less open than those of the reserve currency economies—the euro area, Japan, Switzerland, the United Kingdom, and the United States. Financial market development in the home country is a crucial determinant of a currency’s international status. Historically, each reserve currency has risen to prominence under unique circumstances and spurred by differing motivations, but one constant is that this process has always required strong financial markets. The relevant aspects of financial market development include •Breadth: the availability of a broad range of financial instruments, including markets for hedging risk; •Depth: a large volume of financial instruments in specific markets; and •Liquidity: a high level of turnover (trading volume). Without a sufficiently large debt market, the renminbi cannot be credibly used in international transactions. If there is insufficient liquidity in markets for renminbi-denominated debt, the currency will not be attractive to foreign businesses. Both importers and exporters may be concerned about greater exchange rate volatility from an open capital account if they don’t have access to derivatives markets to hedge foreign exchange risk. Where do things stand?

China’s financial system remains bank dominated, with the government directly controlling most of the banking system. Total domestic credit provided by the banking sector outweighs the size of the equity and bond markets combined. The banking system’s size and structure, which protect banks’ profits by limiting competition, and regulatory barriers have stifled broader financial market development. Debt markets in China lag far behind those of major reserve currency economies in size and liquidity (see Chart 1). The government debt market is reasonably large in absolute terms but turnover is low. Turnover is relatively high in China’s corporate bond market, which is still small. Analyzing the shares of international debt securities according to the currencies of issuance reveals a similar picture. The existing reserve currencies dominate; only a paltry 0.1 percent of international debt is denominated in renminbi. While the absolute size of the debt securities market in China is small from a cross-country perspective, it should not mask the rapid growth of these markets, which is consistent with the country’s intention to make the renminbi accepted as an international currency (see Chart 2). Nevertheless, reserve currency status for the renminbi is probably a much longer-term goal.

One area in which China has made significant progress is in the development of equity markets. Following reforms in 2005, market capitalization and turnover surged and have grown sixfold, while trading volume has climbed more than tenfold. However, Chinese stock markets are highly volatile and prone to concerns about corporate governance, so they may be of limited help in promoting the renminbi’s role as an international currency. The pace of internationalization of China’s currency depends on its use in international financial transactions, not just trade. Foreign exchange market turnover is a good indicator of a currency’s potential as a vehicle currency for transactions involving cross-border trade in goods and financial assets. Currently, the renminbi accounts for less than 1 percent of all turnover in foreign exchange markets in 2010, but that understates reality. China uses Hong Kong SAR as an important financial center for settling foreign exchange transactions, and in 2010, Hong Kong SAR accounted for 5 percent of global foreign exchange market turnover. Hong Kong SAR provides a useful platform that puts the renminbi on a competitive footing relative to other emerging market currencies in terms of reaching international currency status.

Most derivatives markets in China are still nascent, but three of its commodity futures exchanges are among the top 20 derivatives exchanges in the world as measured by the number of futures and options contracts traded. From the perspective of promoting international use of a currency, however, a large commodity derivatives market is not as useful as more diverse and liquid financial derivatives markets. To some extent, policies that direct activity toward Hong Kong SAR are playing a role generally carried out by vibrant domestic financial markets. Both the amount of renminbi deposits and the number of institutions authorized to conduct renminbi business in Hong Kong SAR have risen sharply over the past year. Policies to increase offshore renminbi use have effectively promoted its global role without risking the potentially deleterious effects of capital account liberalization. But the full potential of the Chinese currency’s international use cannot be realized without more active onshore development. Ultimately, it will be difficult to fully develop foreign exchange and derivatives markets without substantial capital account liberalization. To sum up, there has been modest development of the breadth, depth, and liquidity of China’s financial markets over the past decade.

But China still comes up short when it comes to the key dimensions of financial market development, and financial system weaknesses are likely to impede its steps to heighten the currency’s international role. A rising international presence Despite the weak financial infrastructure supporting it, the renminbi is gaining an international presence (see Charts 3 and 4). China has been using Hong Kong SAR extensively as a testing ground for initiatives to promote the international use of the renminbi. Personal renminbi business was launched in Hong Kong SAR in 2004, when residents there were allowed to open deposit accounts denominated in renminbi. Other initiatives followed, such as cross-border settlement of trade transactions and renminbi bond issuance. Given China’s rapidly expanding trade volume, promoting renminbi trade settlement is a logical first step toward the currency’s internationalization. Since it began in 2009, cross-border trade settlement in the Chinese currency has surged. In 2011, renminbi trade settlement amounted to about 8 percent of China’s total trade in goods and services.

Monthly remittances of renminbi used for cross-border settlement in Hong Kong SAR rose to nearly $25 billion a month in 2011, more than double the 2010 average. Issuance of renminbi-denominated bonds (known as dim sum bonds) in Hong Kong SAR is on the rise as well, tripling from 2007 to 2010 and hitting a high of about $10 billion in the second quarter of 2011. Fewer of these bonds were issued during the remainder of 2011, reflecting weaker global market conditions as the debt crisis in Europe continued to fester. Another way to gauge offshore use of the renminbi is to look at transactions among banks. Such renminbi clearing transactions were virtually nonexistent until mid-2010, when financial institutions in Hong Kong SAR were allowed to open renminbi-denominated accounts. Since then, both the volume and value of transactions have increased dramatically. The total value of transactions hit a peak of more than $500 billion in August 2011.

Although still on a modest scale, the initiation and rapid expansion of various elements of the offshore renminbi market foretell the currency’s significant presence in trade and financial transactions in Asia. Some might argue, however, that dim sum bond issuance and cross-border settlement in renminbi are still narrow in scope, with most of the activity accounted for by Chinese mainland companies and their Hong Kong SAR subsidiaries. Some of this activity may also reflect attempts to circumvent capital controls. In short, even the influence of offshore renminbi use has some distance to go to reach its full potential. On another front, China’s central bank is establishing and expanding local currency bilateral swap lines with other central banks around the world to facilitate and expand the use of the renminbi in international trade and financial transactions. The amounts of these bilateral agreements are small, but they indicate efforts to make other countries’ central banks comfortable and familiar with renminbi-denominated instruments and financial facilities. The renminbi has also started to appear in a few central banks’ foreign exchange reserve portfolios. Malaysia and Nigeria first reported renminbi reserves in 2011. Chile’s central bank investment portfolio now has 0.3 percent of its assets in renminbi-denominated instruments.

Other central banks are considering adding renminbi assets to their reserve portfolios. These holdings cannot in principle be counted as official reserves, given the renminbi’s lack of convertibility, but that does not seem to deter these central banks, which see renminbi-denominated assets—just like those of other major reserve currencies—as insurance against balance of payments pressures. These moves are all modest in size but symbolically important in signaling the shift in perception about the renminbi’s stability and its future role in the international monetary system. Taking on the dollar Is the renminbi on a trajectory to usurp the U.S. dollar’s role as the dominant global reserve currency? Perhaps, but the day is a long way off. It is more likely that, over the next decade, the renminbi will evolve into a reserve currency that erodes but doesn’t end the dollar’s dominance. About two-thirds of global foreign exchange reserves are now held in U.S. dollar–denominated financial instruments. Other indicators, such as the dollar’s shares of foreign exchange market turnover and cross-border foreign currency liabilities of non-U.S. banks, confirm the currency’s dominance in global finance. There are growing concerns about U.S.

macroeconomic stability that might affect the dollar’s desirability. Although the U.S. central bank, the Federal Reserve, has strong worldwide credibility for its inflation-fighting credentials, rising public debt poses a serious concern. U.S. gross general government debt is about 90 percent of GDP, and IMF forecasts indicate that it could reach 110 percent of GDP, or nearly $21 trillion, by 2016. This is dangerous terrain for the world’s largest economy, but paradoxically—given the weaknesses in Japan and the euro area and emerging markets’ demand for so-called safe assets as they continue to accumulate foreign exchange reserves—rising U.S. debt may cement the dollar’s dominance in the global financial system. Moreover, a gulf remains between China and the United States when it comes to the availability of safe and liquid assets such as government bonds. The depth, breadth, and liquidity of U.S. financial markets are unmatched. Rather than catching up to the United States by building up debt, the challenge for China is to develop its other financial markets and increase the availability of high-quality renminbi-denominated assets. The renminbi is attaining more prominence in international trade and finance.

While this importance is sure to grow, the renminbi is unlikely to become a prominent reserve currency—let alone challenge the dollar’s dominance—unless it can be freely converted and China adopts an open capital account. The challenge for the Chinese government is to back up its modest international policy actions with substantial domestic reforms. The renminbi’s prospects as a global currency will be shaped by a broader range of policies, especially those related to financial market development, exchange rate flexibility, and capital account liberalization. The path of China’s growth and the renminbi’s role in the global economy will depend on those policy choices.­ ■ Eswar Prasad is the Tolani Senior Professor of Trade Policy at Cornell University and New Century Chair in International Economics at the Brookings Institution. Lei Ye is a graduate student at Cornell University. This article is based on a Brookings Institution study by the authors titled “The Renminbi’s Role in the Global Monetary System.” Renminbi – Deutsche Bank Deutsche Bank for Renminbi Solutions RMB Inter­natio­nali­sation The increasing global influence of China’s currency – the Renminbi (RMB) – is one of the most significant developments shaping global financial markets.

RMB internationalisation has been occurring within the context of China’s managed transition towards a more market-driven economy, which necessitates greater mobility and market-based pricing of capital. Since 2009, the Chinese authorities have accelerated the process of financial reform through currency internationalisation, capital account opening and the gradual liberalisation of domestic interest rates. The RMB’s transition to a global currency After the first pilot scheme to allow cross border RMB trade settlements was established in 2009, and expanded to include all Chinese provinces and global counterparties in 2011, the redenomination of cross-border trade to RMB rose rapidly. At the end of 2015, about 29% of China’s cross-border trade was denominated in RMB, from a negligible level just a few years earlier. Since October 2013, the RMB has been the second most used currency in trade finance, based on SWIFT data. The RMB is now fully convertible on the current account, but also across an increasing number of items on the capital account.

Accordingly, corporations, investors and financial institutions have a wider variety of channels and instruments available to transact in RMB, whether in China or in a growing number of offshore locations. Redenomination of cross-border trade in RMB may bring efficiency improvements, reduced transaction costs and discounts in some cases. Meanwhile, the launch of China’s Cross-Border Interbank Payment System (CIPS) in October 2015 marked an important milestone in RMB internationalisation, providing internationally-aligned infrastructure that promises to streamline clearing and settlement of the currency. Chinese policymakers have also relaxed capital account controls to allow more cross-border direct and portfolio investment flows. China has long been the world’s largest developing country recipient of foreign direct investment (FDI), however the country is becoming increasingly prominent as an exporter of capital, or overseas direct investment (ODI). Meanwhile, a variety of structures and solutions are now available for companies to raise funds in RMB markets, ranging from debt issuance in the offshore RMB bond market to offshore RMB borrowing by registered entities in the Shanghai Free Trade Zone and elsewhere in China. Onshore, China’s domestic markets are becoming more accessible to foreign investors.

The launch of the Stock Connect programme in late-2014 introduced a linkage between the Hong Kong and Shanghai stock exchanges (with plans to eventually cover the Shenzhen Stock Exchange and additional asset classes). This mutual market access scheme allows participants in the two cities to invest in each other’s stock markets without the need for institutional quota. Progress in capital account opening is also evident from the expansion of the RMB Qualified Foreign Institutional Investor (RQFII) program to new offshore centers in Europe, North America, the Middle East, Latin America and Australia – and the expansion of the total quota for both QFII and RQFII programmes. In 2015 and early-2016, China’s central bank took steps to open the interbank bond market to foreign real money investors. In recognition of the progress that the Chinese authorities have made in capital account opening and financial reform, the IMF’s Executive Board decided on November 30, 2015 to admit the RMB into the Special Drawing Right (SDR) basket at a weight of 10.92% (effective October 1, 2016).

The internationalisation of the RMB has outpaced other areas of financial reform, entering an accelerated phase from 2014, with new clearing banks appointed in financial centres across Asia, Europe, Canada, Africa and Latin America. Since the first pilot scheme to allow cross border RMB trade settlements was established in 2009, and expanded to include all Chinese provinces and global counterparties in 2011, the redenomination of cross-border trade to RMB has grown rapidly. At the end of 2014, 21.6% of China’s cross-border trade was denominated in RMB, from a negligible level just a few years earlier. Since October 2013, the RMB has been the second most used currency in trade finance, based on SWIFT data. The RMB is now fully convertible on the current account, but also across an increasing number of items on the capital account. Accordingly, corporations, investors and financial institutions have a growing variety of channels and instruments available to transact in RMB, whether in China or in a growing number of offshore locations. Redenomination of cross-border trade in RMB may bring efficiency improvements, reduced transaction costs and discounts in some cases.

The recent relaxation of regulatory restrictions makes it easier for multinational companies to manage cash across borders and move funds from their China operations for inclusion in their regional or global liquidity pools. Meanwhile, the launch of China’s Cross-Border Interbank Payment System (CIPS) in October 2015 marked an important milestone in RMB internationalisation, providing internationally-aligned infrastructure that promises to streamline clearing and settlement of the currency. Chinese policymakers have also continued relaxing capital account controls to allow more direct and portfolio investment flows into and out of China. China has long been the world’s largest developing country recipient of foreign direct investment (FDI), however the country is becoming increasingly prominent as an exporter of capital, or overseas direct investment (ODI). Meanwhile, a variety of structures and solutions are now available for companies to raise funds in RMB markets, ranging from debt issuance in the offshore RMB bond market to offshore RMB borrowing by registered entitites in the Shanghai Free Trade Zone and elsewhere in China. Onshore, China’s domestic markets are becoming more accessible to foreign investors.

The most significant recent milestone in the liberalization of portfolio investment flows was the launch of the Stock Connect programme in late-2014, initially linking the Hong Kong and Shanghai stock exchanges (with plans to eventually cover the Shenzhen Stock Exchange and additional asset classes). This mutual market access scheme allows participants in the two cities to invest in each other’s stock markets without the need for institutional quota. Progress in capital account opening is also evident from the expansion of the RMB Qualified Foreign Institutional Investor (RQFII) program to new offshore centers in Europe, North America, the Middle East, Latin America and Australia – and the expansion of the total quota for both QFII and RQFII programmes. In 2015, China’s central bank took steps to open the interbank bond and foreign exchange markets to foreign central banks, supranational organizations and monetary authorities. In recognition of the progress that the Chinese authorities have made in capital account opening and financial reform, the IMF’s Executive Board decided on November 30, 2015 to admit the RMB into the Special Drawing Right (SDR) basket at a weight of 10.92% (effective October 1, 2016).

China’s role in global trade China is the world’s largest exporter of goods and second largest importer. By the measure of gross domestic product at purchasing power parity, China’s economy is already the biggest in the world. By the more conventional measure of nominal GDP, it will likely be the world’s largest by around 2020. Chinese economic growth has decelerated in recent years, however, partly due to the central government’s efforts to rebalance the economy from an investment and export led model to a consumption led growth model. Whereas China’s economy expanded by more than 14 per cent in 2007 and 10 per cent as recently as 2010, the official growth target for 2016 is between 6.5% and 7%. Even with an economic slowdown, China will remain a powerhouse in global trade. The sheer scale of China’s cross-border exports and imports will mean that China will remain the single biggest contributor to global trade in absolute terms. Although it no longer possesses the low-cost advantage in every segment, the nation’s industrial sector is moving up the value chain to gain market share in higher value goods.

Additionally, the increasingly important domestic market is absorbing a growing share of Chinese manufacturing output. The use of RMB in trade settlement has been the most fundamental building block in the internationalisation of China’s currency. China’s cross-border trade volumes settled in RMB were up by about 10% in 2015 from 2014 levels, which in turn were up 42% from 2013 levels. China‘s focus on more balanced growth and domestic structural reforms will gradually lead to lower savings and increase consumption, which should translate into greater purchasing power for goods and services from the rest of the world. From a longer term perspective, China will remain a growth engine for the world economy, albeit with a changing composition in supply and demand drivers. RMB – Deregulation timeline To understand the significance of the internationalisation of the RMB it is important to know the relatively young history of China´s currency. The key milestones can be found here .

Will the yuan eventually become a truly global currency?, Opinion News & Top Stories - The Straits Times The Straits Times Copy This is the eighth of 12 primers on various current affairs issues, published as part of the outreach programme for The Straits Times-Ministry of Education National Current Affairs Quiz. China's ascent to the ranks of global economic superpowers is one of the most compelling rags-to-riches stories of our time, but its rise has hardly been smooth sailing. In particular, as China's economic clout grows, gyrations in the country's tightly-managed currency have acquired the power to roil world markets and wipe billions off global stock prices. Take last August when the world's second-largest economy rattled global investors with a surprise devaluation that guided the normally stable yuan down nearly 5 per cent over a week, causing its biggest one-day loss in two decades. The move intensified fears over slowing growth in China and led to a bloodbath in currency and stock markets around the world. Despite recent volatility and uncertainties over China's growth prospects, it is clear that the country - and, correspondingly, its currency - will play an increasingly important role on the global stage.

The Straits Times charts the yuan's rise, and takes a peek into the currency's future. Even as the yuan becomes more widely used, whether or not it can become a trusted "store of value" for central banks around the world - comparable to the greenback, pound, euro and yen - will depend on the success of financial market reforms in China. PHOTO: REUTERS THE RISE OF THE YUAN The currency's trajectory has been an impressive one and mirrors China's rise as an economic powerhouse. Swift, which provides a financial messaging service for banks around the world, calculates that the yuan has gone from the 20th most-used currency for cross-border payments at the start of 2012 to the fifth. Nomura Securities predicts that by 2030 the yuan will become one of the top three major international currencies - "a peer to the United States dollar and the euro as the most used currencies in the world". China has taken a number of measures to promote the yuan's use as an international currency. These include permitting the settlement of trade transactions with the currency, allowing issuance of yuan-denominated bonds in Hong Kong and other financial centres and letting selected banks offer offshore yuan deposit accounts.

Last year, the Chinese currency was accepted as part of the basket of currencies in the International Monetary Fund's (IMF's) Special Drawing Rights (SDR). It joins the US dollar, the British pound, the euro and the Japanese yen in this elite club. The SDR plays an influential role in global finance, helping governments protect their financial reserves against global currency fluctuations. About The Big Quiz This primer is part of The Straits Times' initiative to discuss issues of national concern. Each Monday, the paper's journalists will address burning questions in the Opinion section, offering Singaporean perspectives on complex issues. The primers, as well as five campus talks helmed by editors and correspondents, are part of this paper's outreach programme called The Straits Times- Ministry of Education National Current Affairs Quiz, nicknamed The Big Quiz. The nationwide event, whose presenting sponsor is the Singapore Press Holdings Foundation, aims to promote the understanding of civics among pre-university students. Yishun Junior College won the first round, held at Innova Junior College on April 6.

Tampines Junior College won the second round, held at Victoria Junior College on April 20, while Catholic Junior College won the third round, held at Anglo-Chinese Junior College on April 27. The other talks by ST journalists and quiz rounds will be held on: • Wednesday at River Valley High School; and •July 20 at Raffles Institution. For more information on the quiz, go to •For more information on the ST Schools programme and its offerings, visit It is also used as the basis of loans from the IMF's crisis-lending facilities. The yuan will be introduced to the SDR on Oct 1, in a move that has been seen as a symbolic recognition of how China's economy and financial sector have evolved. BRACING FOR A BUMPY RIDE However, the yuan's transition to a global currency will not be a smooth ride. Despite taking a series of steps to relax its control of the currency in recent years and allow market forces to play a bigger role in determining the exchange rate, China still keeps the yuan on a tight leash. It sets an official midpoint every trading day, from which the currency can rise or fall 2 per cent.

However, this closely managed exchange rate will become increasingly hard to control as more funds move in and out of China. In recent months, a torrent of capital has been flowing out of China due to worries about the slowing economy, causing the currency to weaken. As a result, policymakers have been burning through the country's foreign reserves in a bid to hold up the sliding currency. This has driven market speculation that China will eventually have to undertake a significant one-time devaluation to weaken the yuan, a move that should ease downward pressures on the exchange rate. But such a step would be interpreted as a sign that the country's economic slowdown is far more severe than people think, and could result in even more money flowing out. In fact, recent moves by Chinese policymakers to tweak the exchange rate have had disastrous consequences. Following the shock move by the Chinese government to devalue the yuan on Aug 10 last year, the Shanghai stock market endured one of the worst one-day falls in history. The contagion spread, and markets across the region - and as far as the US - tanked. Analysts estimate that more than US$5 trillion (S$7 trillion) was wiped out from the markets last August alone. WHAT NEXT?

As China further opens up its capital markets, the number of transactions made using the yuan will continue rising. The country has the second- largest stock market and third-largest local bond market in the world, which are potential targets for foreign investors. Even as the yuan becomes more widely used, whether or not it eventually becomes a truly global currency will depend on the success of financial market reforms in China. This boils down to whether the yuan can become a trusted "store of value" for central banks around the world - comparable to the greenback, pound, euro and yen. China's financial markets are large but highly volatile, poorly regulated, and lack strong supporting institutions. The country is attempting to push through challenging structural reforms to rebalance the economy towards services and consumption, as well as financial market reforms that will open it up to more foreign investment. Meanwhile, the world can probably expect more volatility and uncertainty surrounding the yuan. •The Primer series will be taking a break and will resume from July 11. Have a burning question related to this week's Primer topic?

E-mail us at askST@sph.com.sg For more information, go to A version of this article appeared in the print edition of The Straits Times on May 16, 2016, with the headline 'Will the yuan eventually become a truly global currency?'. Print Edition | Subscribe Topics: The rise of the redback — HSBC Global Connections The rise of the redback HSBC Bank Middle East From deeper trading relationships to potential discounts on renminbi denominated transactions, trading in RMB offers a range of benefits. But according to the 2015 HSBC Global RMB Survey, many businesses are still missing out. Print With its global trade in goods surpassing US$4trn, China overtook the US to become the world’s largest trading nation in 2013 and is becoming increasingly important to international businesses. Alongside this, the internationalisation of the RMB is creating new opportunities in trade, investment, cash management and funding. However, the bank’s latest International RMB Survey suggests that despite the currency’s increasingly international status, many businesses that trade with China have yet to fully embrace the RMB.

The survey polled more than 1,600 decision-makers from Australia, Brazil, Canada, mainland China, France, Germany, Hong Kong, Malaysia, Singapore, South Korea, Taiwan, the UAE, the UK and the US; all of whom represent companies that conduct international business with or from China. It does, though, appear that companies in the UAE are starting to consider the benefits of trading in RMB. According to the survey, almost a quarter (24%) of businesses in the UAE have engaged in boardroom discussions about the renminbi (RMB) as a potential opportunity or business enabler for cross border trade. According to the poll, the level of focus senior management teams in the UAE are giving to the RMB through their discussions sits on par with countries such as Singapore, Malaysia and Germany – and higher than the global average of 22%. “We have been seeing a steady increase in numbers of Chinese businesses either coming to set up base in the UAE or wanting to do more with businesses already in the country.

We expect this trend to remain, particularly as the Chinese government continues to diversify across sectors such as manufacturing, infrastructure and logistics,” says Ahmed Yeganeh, Regional Head of International Subsidiary Banking for HSBC MENA. “It is therefore no surprise that the debate on using the RMB has reached boardroom level. Companies are asking the right questions as they look for first mover advantage. They are recognizing that trading in the currency can bring significant benefits such as reduced foreign exchange risk, cheaper and more competitive pricing, which in turn, will enable them to take on more business.” More than half (54%) of all the businesses surveyed expect to increase their cross-border trade with China in the next 12 months. Of the companies outside Asia, the UAE has the highest expectations of China trade growth at 71%, followed by the US (65%), the UK (64%), and Germany (60%). With expectations of growing trade with China, the advantages for both UAE importers and exporters moving to transactions settled in RMB are increasingly clear. For UAE importers, making payments in RMB means the Chinese supplier no longer needs to convert receipts back into their domestic currency thereby overcoming the risk of an appreciating RMB.

This makes trading with businesses who settle in RMB more attractive. By pricing goods in RMB, UAE exporters may be able to provide greater stability in supply costs for Chinese importers who sell in RMB and removes their FX costs which can be significant. This can in turn open a wider client base for UAE exporters as it allows their Chinese customers to be more competitive in their home market. Despite some hesitancy from businesses around the world, overall, RMB usage has soared since China started to dismantle barriers limiting cross-border transactions in 2009. In late 2014 it became the fifth most-used currency for global payments, according to data from SWIFT, after the value of RMB payments more than doubled in a year. During 2014 the Chinese authorities made a number of regulatory changes to make the RMB easier for companies to use and more responsive to market forces; including the introduction of two-way cross-border sweeping and a widening of the onshore trading band against other major currencies. With such significant developments, the internationalisation of the RMB is gathering pace, and businesses everywhere should be considering the implications of a currency that’s already far more ‘mainstream’ than many people realise.

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article. Renminbi: Soon To Be A Reserve Currency? - Business Insider China's currency manipulation could become a global problem in 2017 I get the question all the time: when will the Chinese renminbi (RMB) replace the US dollar as the major world reserve currency? The assumption behind such questions is almost always that the coming crisis in US entitlement programs will force the Fed to monetize even more debt, thereby killing the dollar. Or some derivative line of that thought. Contrary to the thinking of fretful dollar skeptics, my firm belief is that the US dollar is going to become even stronger and will at some point actually deserve to be the reserve currency of choice rather than merely the prettiest girl in the ugly contest – the last currency standing, so to speak. But whether the Chinese RMB will become a reserve currency is an entirely different question. Of course it will, over time, but the question has always been when.

There are some preconditions required for reserve currency status. Quietly, apart from anything that might happen to the US dollar, China is working to meet those conditions. Rather than wallowing in concerns about China's actions, we might opt for a more thoughtful and constructive response: to welcome the RMB to the reserve currency club and hope that it gets here soon. The world will be a better place when that happens. And off the radar screen, it may be happening right now. Today we look at global trade flows and international balances and try to imagine a world in which much "common wisdom" gets stood on its head. It should make for an interesting thought experiment, to say the least. (This letter will print a little longer than usual, as there are numerous chart s and graphs.) One of the prerequisites for a true reserve currency is that there must be a steady and ready supply of the currency to facilitate global trade. The United States has done its part in providing an ample supply of US dollars by running massive trade deficits with the rest of the world, primarily with oil-producing nations and with Asia (most notably China and Japan), for all manner of manufactured products.

The US consumer has been the buyer of last resort for several decades (I say, somewhat tongue in cheek). Those dollars typically end up in the reserve balances of various producing nations and find their way back to the US, primarily invested in US government bonds. In an odd sense, the rest of the world has been providing vendor financing to the US, the richest nation in the world. John Mauldin The US Trade Deficit Turns Positive The US trade deficit (a key component of the current account deficit – see chart on next page) fell to an unprecedented percentage of GDP during the last decade, a development that normally heralds a significant drop in a currency. Fortunately, the "exorbitant privilege" of controlling the world's dominant currency in reserve holdings, international trade, and financial transactions has helped shield the US dollar from a hard correction; but that status quo is in danger. After flooding the world with US dollars for more than twenty years, the US has reduced its current account deficit by 58% since the 2007-2008 financial crisis began. Looking ahead, I and many other observers believe this measure can continue to improve, due two surprisingly positive factors: The US energy boom in shale oil and gas.

The US has caught an incredibly well-timed "lucky break" made possible by the combination of new exploration, production, and processing technologies (such as horizontal drilling and fracking) and by the serendipitous discovery of massive supplies of oil and gas, often in areas that already have significant infrastructure and/or are accessible at reasonable costs. This energy renaissance is part of the reality that has made Houston, Texas, the number one port in the United States, with even more growth coming in the near future when the Panama Canal expansion is completed in 2014. US manufacturers are turning less-expensive oil and gas into value-added fossil fuel products and exporting them to the world. This trend will become ever more important. Indeed, when the first LNG export terminal is opened in a few years, the additional exports will approach $80 billion a year, I am told. From one terminal! There are four in the process of being approved and more on the planning boards. The math is there for anyone to do. Spot prices in the US natural gas-producing areas are under $4. The Japanese are paying more than $14. Even I can do that arbitrage.

Just for fun, the next graph, from the Energy Information Administration, shows the rise in spot gas prices over the last six months, from a level that had been far too low. It also shows the arbitrage potential that exists right here in the US. John Mauldin The consequent renaissance in US manufacturing. With cheaper energy and new technologies like advanced robotics and 3D printing, the US is producing more than we ever have – we're just doing it with fewer people. These two trends are bullish for the US in general. But that's another story for another letter. The point today is that the US current account deficit is collapsing. A positive trade balance is not an unthinkable prospect today. It is quite possible that the US will be more or less energy self-sufficient by the end of the decade and could have a positive trade balance not long after that. I should note that exporting value-added chemicals made from less expensive energy will contribute even more to the positive balance than simply selling the raw natural gas. John Mauldin Should the US achieve a positive trade balance, that shift would have a BIG impact on the rest of the world.

For starters, moving from a current account deficit to a current account surplus will disrupt the two most important trade relationships in the world today: (1) the exchange of US dollars for OPEC oil, and (2) the exchange of US dollars for Asian manufactured goods. And while the US will continue to import significant (one could even say huge) quantities of manufactured goods, the quantity of dollars moving permanently offshore will be significantly reduced. As a quick aside, by definition, a shrinking US current account deficit also means falling liquidity around the world (since the USD makes up one side of the trade in 87% of global currency transactions); and, as our friends at GaveKal have argued for years, a falling US current account almost always means that we will see a crisis somewhere in the world. John Mauldin This is why the very same emerging-market central banks that complained about the Federal Reserve's quantitative easing under QE3 are now openly calling upon the Fed to reconsider its tapering stance. Now that Fed has hugely inflated the emerging-market balloon, these economies are more vulnerable to popping.

I recently read that the Monetary Authority of Singapore (the Republic of Singapore's central bank) suggested rather strongly that the US Federal Reserve should consider its role to be that of central banker to the world and that it should thus make sure there is a sufficient supply of dollars to facilitate global trade. (Their suggestion may be due in part to the fact that they have lost $10 billion in the last year trying to keep the value of their currency from rising.) With the US current account deficit continuing its fall, we need to be alert for the next crisis abroad. It is very difficult to predict exactly when, where, and how markets will panic, but taking US dollars out of the trading system is akin to losing a chair in a game of musical chairs. Someone is going to be left out. It could be Europe or Japan – there are more chapters to come in the sordid European and Japanese economic sagas – but more likely it will be emerging-market countries loaded with a lot of external debt denominated in US dollars who struggle to keep a seat at the table.

Emerging markets, particularly Asian and Latin American economies, took a beating during the 1990s precisely because of boom-and-bust credit cycles caused by hot capital inflows followed by rapid capital outflows. This volatile boom/bust cycle is precisely what emerging-market policy makers were hoping to forestall by holding larger foreign exchange reserves starting in the late '90s, but trading predominantly in the US dollar left them to vulnerable to swings in market interest rates and Fed policy. Let's review the current state of global trade imbalances. Fortunately for us, the Bank for International Settlements just released a paper that gives us the data on this very topic (BIS Working Paper No 424: " Global and Euro Imbalances: China and Germany ," by Guonan Ma and Robert N McCauley). You'll want to view following chart in color (if you printed this letter in black and white) in order to appreciate how important the US trade deficit has been to world trade in the past 15 years. Remember, by definition, if there is a surplus in one part of the world, there must be a deficit in another. World trade balances must even out.

That can happen through adjustments in the value of currencies or through countries producing as much as they sell. The US is a special case, since 87% of world trade is denominated in dollars; and the demand for dollars is evidently high enough to keep the price up, despite massive quantitative easing. John Mauldin China Moves to Float Its Currency Now back to China. I did an extended interview with Louis Gave this past Monday on BNN, the national Canadian business network ( part 1 , part 2 ). Let me offer a rough transcription of what he said. I had just commented on my belief that the US is on its way to a positive trade balance, which will make the dollar remarkably strong. The corollary is that there will be fewer dollars available to the world for global trade. Then Louis jumped in: I think it [a positive US trade balance] is a very important development for the part of the world I come from. I live in Hong Kong. Asia up to now has mostly been a US dollar zone. In Asia we basically produce manufactured goods, sell them to the US, and earn the US dollars we need to trade with one another. So when China trades with Indonesia, the trade is denominated in dollars.

When Japan trades with Taiwan, that trade is denominated in dollars. The big issue is, if we move into a world where the US current account deficit disappears – both through the energy revolution that the US is going through and the consequent manufacturing renaissance – then, all of the sudden, manufacturing in the US is a lot cheaper than elsewhere because the cost of energy is so much cheaper. If the US basically imports [brings back] all of its manufacturing and no longer exports US dollars, how will Asia trade with itself? And how will emerging-market trade grow if they don't earn the dollars? I think the answer to those very important questions will increasingly be the RMB. What you have witnessed in the past two to three years is China making a very apparent play to internationalize its currency. In just two years, China has gone from settling 0% of its exports in RMB to settling 18% of its exports in RMB. Two years ago, the RMB was a non-currency [in international trade/finance]. Nobody owned it. Nobody traded it. Today, the renminbi is already – in just two years – in the top ten traded currencies in the world…. [See the table my research staff found, below.

–John] I think this shift is taking place because China has a massive comparative advantage that most people never think of. If I asked, "What's China's comparative advantage?" 99 out of 100 people would say "cheap labor," but that's not true. Labor is not that cheap in China anymore. China's comparative advantage is that China – alone amongst emerging-market nations – has a deep and credible financial center. It takes 50 years to build a financial center – to, you know, have auditors, lawyers, accountants, judges. And China is very lucky, because in 1997 the Brits – who are quite good at building financial centers – basically built one in Hong Kong and told China, "Here it is. Try not to mess it up." For twelve years, China did nothing with Hong Kong. It was kind of a deal of "You don't bother us, we won't bother you. We've got other fish to fry." And that worked well until all of a sudden, in the past two to three years, China has been internationalizing its currency through Hong Kong, and it is taking off like wildfire. We always talk about what you see and what you don't.

Everybody talks about the China slowdown. Everybody talks about the impact this is going to have on commodities, on countries like Canada, on countries like Australia. Nobody talks about what you don't see. And what you don't see is that China is slowly but surely internationalizing its currency. It's slowly freeing capital controls. It's creating deep and liquid capital markets, and this is going to change the way that companies and individuals finance themselves among emerging markets. It's going to make for more stable emerging markets and hopef ully for higher growth. Just as Louis predicted years ago, the Chinese RMB has continued to quickly climb the ranks from an internationally non-existent currency to number nine on the list! John Mauldin This process is happening at lightning speed by historical standards, but we can still expect it to progress over the next 5-10 years. The renminbi is still only involved in 2.2% of foreign currency transactions, but this number can take a big jump when the RMB floats freely, though there is a big difference between the RMB and the true reserve currencies (USD, EUR, JPY, GBP) today.

(Note that the renminbi is also called the yuan, abbreviated as CNY in the chart below.) As Louis mentioned, China stands alone among the emerging markets as having the only mature and credible financial center with deep and liquid capital markets, in Hong Kong. The building of a true global financial center typically takes about 50 years, so China is taking advantage of its lucky break to fast-track its currency to reserve status. John Mauldin What may speed the process up is increasing cooperation between Chinese officials and the UK government to support RMB internationalization through London's FX markets. Gregory Clark, Financial Secretary to the UK Treasury, was in Hong Kong this past week and wrote an op-ed in the South China Morning Post. Let's look at a few telling sentences: Over 50 percent of UK investment in Asia is in or flows through Hong Kong. That is a tremendous vote of confidence in Hong Kong by UK companies…. Bilaterial trade in goods between Hong Kong and the UK rose by 13.5% between 2009 and 2012, to a total value of £12.1 billion in 2012. This makes Hong Kong the UK's second biggest export market for goods in Asia Pacific….

According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), London now accounts for 28 per cent of offshore RMB settled transactions. In London, the volume of Renminbi-denominated import and export financing has increased 100 per cent since 2011. This is delivering real benefits and savings for business. It is estimated that firms can reduce their transaction costs with China by up to 7 per cent by denominating their trade in Renminbi. The Renminbi’s rise is being enabled not just in Hong Kong and London. Chinese banks have established clearing banks and accounts in more than 80 other countries in the last four years. But the story runs even deeper. It appears to me that China is getting ready to create another Hong Kong in the traditional financial center of China, Shanghai. My good friend and decades-long China expert Simon Hunt notes: The proposed development of the Free Trade Zone (FTZ) in Shanghai, covering 28sq km, will have huge consequences for China's financial markets and that of the world.

It will be a tax-free zone; the RMB will be fully convertible; the FTZ will have its own rules and regulations that cannot be trumped by central government; it will be legally outside the Chinese Customs, in fact a separate territory inside China; it has the effect of abolishing control over capital account investment, so allowing freedom to set up all kinds of companies and moving capital in and out of the FTZ, meaning in and out of China; it will become an international settlement centre for international trade and it will allow banks within the FTZ greater flexibility in conducting business. In short, the implications of the development of the FTZ, if the pilot scheme goes smoothly, will be humungous not just for China but for the global economy.< /p> One near-term consequence will be that interest rate arbitrage can be more effectively conducted in the zone and will take business away from Hong Kong and Singapore. Chinese companies won't have to set up offshore companies in Hong Kong or Singapore to conduct this business. Already, Chinese and foreign companies are either renting space, putting up buildings or buying office space in the FTZ, just waiting for the final details to be publicised.

This move makes sense for China, as it is a large step toward eventually floating the currency, which is yet another requirement for a true reserve currency. I've written in the past that I think the initial move when the Chinese eventually float their currency will be for the RMB to go down against the dollar (although longer-term it should become quite strong), because there is a lot of money in China that would like to diversify. Setting up a free-trade zone, as they propose in Shanghai, is a way to slowly let the air out of the balloon and perhaps even avoid the dramatic dislocations that might occur if they were to float the currency all at once. Even so, internationalizing the RMB carries a lot of risk, so why does China really want to globalize its currency? Summarizing from a recent report from DBS Bank (based in Singapore), we can piece the picture together: "China has experienced 35 years of relatively stable 10% GDP growth. It's 28 times bigger today than it was in 1978. Why risk this kind of success for a globalized RMB and an open capital account?

The structure of the global economy has changed radically since 1978 while the financial architecture has changed barely at all. Between now and 2020, China's two-way trade will grow by $4 trillion. That's nearly the size of the entire of offshore eurodollar market. China doesn't just want a globalized RMB; it needs one. The Middle Kingdom's growth since the 1970s can largely be explained by mobilizing two key factors of production: land and labor. Now that economic growth is slowing in China as a whole (although there are still regional booms in some areas), Chinese policymakers hope they can regain momentum by mobilizing the last factor: capital. For China to become a powerhouse exporter of its own products, it is eventually going to need to be able to offer financing to its ultimate customers in Indonesia, Vietnam, and the rest of Asia. If you are competing with Caterpillar and Komatsu, you not only need to have a less expensive product, you need to be able to offer financing. The same goes if you're selling telecom gear, power-generation equipment, automobiles, or bullet trains.

In order for a currency to achieve reserve status, there has to be something for the country receiving the currency to invest in. If a country receives US dollars, they can invest in our bonds and stock markets. Just a few years ago, China created the dim sum bond market in Hong Kong, which is beginning to provide a real investment alternative for emerging markets – particularly in Greater China and Southeast Asia, where trade is largely intraregional. With China's having the largest trading flows in the world (it just passed the US, by roughly $1 billion, in 2012), a free-floating RMB could quickly reach reserve status and, oddly enough, take FX market share from the USD, which could become be too strong and too scarce to work well in global trade. China is on its way to becoming a reserve currency not because of weakness in the US dollar but precisely because the US dollar is going to get stronger and become less readily available. Countries are going to need to be able to trade in something besides dollars. It simply makes sense that if 20% of an emerging-market country's trade is with China, it should do the trades in RMB rather than in relatively scarcer dollars.

Of course, this means that China needs to have a relatively stable monetary policy so that its trading partners will have confidence in the long-term RMB, but China realizes that. And of course the RMB will have to meet all the other requirements for being a reserve currency. Note that there is a difference between a reserve currency and a safe-haven currency. A safe-haven currency must be immune from government confiscation, currency controls, taxation, rapid exchange-rate depreciation, etc. As I mentioned, the RMB will probably depreciate rather than appreciate when the currency floats freely. There is a lot of capital trapped behind China's capital-control wall that wants out, and party leaders know the trick is to make the transition to floating very gradually and without precipitating a crisis. The trouble (although the Chinese will not admit it) is that China is even more addicted to money printing than the US or Japan are. For years, the People's Bank of China has been injecting money into the system each time excess foreign capital flows into the region. (This is necessary as long as China wants to effectively peg the RMB to the USD). Recent rate volatility suggests the Chinese credit system is quite fragile.

Quite simply, interest rates do not spike from 3% to 13% in a healthy economy, as they recently did in China (see chart below). This instability suggests there is more going on than we understand. It is also why the floating of the RMB will occur as a series of steps on a journey rather than one big leap. And frankly, that makes sense. John Mauldin Finally, floating the RMB would also let China dive right into the global currency war that Japan launched last spring. After all, they would just be "giving in" to long-standing US demands that they not manage their currency. China would be able to simply say, "We did what you asked. Why are you complaining about what the free market says about the value of the RMB?" What a perfectly innocent way to escalate a currency war. In less than a month I will have a new book in the bookstores (see below) on central bank policy and the major global currency war that I and co-author Jonathan Tepper see coming right around the corner.

As the proverbial Chinese curse says, "May you live in interesting times." Transformational Technologies I mentioned last week that Pat Cox has come to work for Mauldin Economics and that we will soon be launching a new letter called Transformational Technology Alert. I have spent a good deal of time with Pat over the last few years, talking about the technologies that are changing our future; and those discussions have become intense as we have worked out how to get that information to you. There's just so much happening around us every day that is hard to keep track of. I can't tell you how excited I am to finally have Patrick on board, where he can put into writing our shared belief that transformational technologies will build wealth, eradicate disease, extend lives, create jobs, and eventually help build a world of abundance. Rapid change is never easy for those in its path; but I would not want to go back to the "good old days" of the '60s or '70s and find myself once again mired in inefficient medical care, making do with snail's-pace communications, and wandering in an information desert.

I had some good moments then, but I'm enjoying the world a great deal more today and expect to have even more fun in the future. My team is working hard behind the scenes right now to get Pat's new website up and running. But I'm so excited to pull back the curtain on what we have planned for Transformational Technology Alert that I want you to have a clear view of Patrick's work today. You should start reading Patrick immediately – his research is that important. Click here to get access to his letter without delay . Tucson, the Barefoot Ranch, and New York I started this letter on the plane from New York and am finishing it at my apartment in Dallas. I'm wrapping up unusually early for me, as I want to go to good friend David Tice's birthday party this evening. (You may recognize him as the founder of the Prudent Bear Fund.) He is hosting us at the Dallas opening of the new film he invested in, called The Secret Lives of Dorks. It is family fare, with James Belushi and a funny part with Mike Ditka. It will open in LA and New York next week and will soon be available on iTunes.

Having grown up as a dork before it was cool to be a dork, I will be interested to see what sorts of memories the film evokes. Next Friday is my birthday, and I will spend it in Tucson with my friends from Casey Research and maybe even try to work in a round of golf. Then I'm back home for a day before driving out to East Texas to join Kyle Bass and a number of fascinating investment minds as we hash through the current economic environment. I will report back. Later in the month I will return to New York, where we will launch my new book, called Code Red, co-authored with Jonathan Tepper (who also co-authored Endgame). The book is about the effects of unorthodox central bank policies and what we believe will be a quite serious currency war that has already begun and will escalate into the latter part of the decade. I will be doing a few presentations, as much media as I can, and taping a video webinar or two for the launch. Jonathan Tepper has promised to fly over from London, so it should be quite fun.

I got a text this week from my daughter Melissa, inviting me to a Dallas launch party for something called Lyft, an outfit that she is going to be working with part-time. Basically, it is on-demand ride sharing. They offer a web-based service that lets you arrange for a car and driver to come pick you up and take you to your next destination. Rather than charging a specific fare, they operate on the basis of donations. There is of course a phone app, and your donation is tracked remotely. There were 4,000 applications to be Lyft drivers in Dallas, and they chose 86 people. Lyft is in about seven major cities and seems to be rapidly expanding. I mentioned this new service to my driver as he brought me home from the airport today. He said he had heard of it and then began to tell me about the drama unfolding at the Dallas City Council over the predecessor to Lyft, called Uber. It seems Uber (which is a service that helps you find a town car rather than call a taxi) is taking significant market share from the Yellow Cab franchise, which he says has 70% of the local taxi business.

Now those taxis are sitting in a lot during the evenings, as the kids would rather call a town car than a taxi. Go figure. (And given that I prefer my driver service over a cab as I go to and from the airport, I completely understand.) So the Yellow Cab company went to city hall to get Uber banned. And Uber shot back that they don't need a city license because they are licensed by the state. It turns out that the Yellow Cab owners make substantial donations to people running for city council, or at least that is what Mike (my driver) claims. An even more interesting, it turns out that the Dallas Police and Fire Pension Fund (remember them from last week?) is invested in the Yellow Cab company – but now the company is not quite the cash machine that it was. The lawyers are engaged. It will be interesting to see the response from both Yellow Cab and Uber to the new competition from Lyft. Lyft sees itself as a service to help friends help friends find a ride. Melissa just sees it as a way to make a little money to help pay for her auto insurance (which is a move Dad encourages), while she works on her studies and does freelance writing.

(By the way, Melissa was the daugher who had the thyroid cancer 19 months ago. She is doing fine, and there appear to be no further problems.) I should note that Lyft has raised $83 million from a group of serious venture capital funds. Mike tells me that Uber just got another $33 million from Google. Serious money, considering that $4 million bought 40% of Yellow Cab of Dallas just over 10 years ago. As a codicil to the above story, when I arrived at the apartment, I stepped out of the car and heard a terrible crunching sound that could only be a serious car wreck. I ran a few feet to the cars, and amazingly both drivers seemed to be okay, although a little shaken up. A Chevy Suburban hit a Lincoln Town Car, so there was a little solid iron around both drivers. It turns out that the town car decided to turn left from the far right-hand lane, which meant it tried to cross four lanes to do so. Looking at the car and driver, Mike speculated, "That must have been an Uber driver.

He got a call and was trying to get to the client quickly." Maybe Dad needs to have a serious discussion about driver safety with Melissa before she goes out Lyfting people. We had perfect weather in New York this week. And the conversations were even better. You have a great week and drive safely. Oh, and take a look at our new Mauldin Economics home page! Our techies tell me that if it doesn't look right, you should hit refresh and/or clear your browser's cache. This is just part one of a two-part upgrade we're doing. In the next few weeks the site will be optimized for mobile, so those of you on phones or iPads will soon have a much better experience. Your still thinking about China analyst, John Mauldin

Question: The Renminbi is currency, and increasingly important in global trading, of which country?
Answer: China