China opens up with currency experiment
China is looking to make significant reforms to its currency as it indicates a shift towards a less constrained Yuan, which will interest British expats moving to China.
The government revealed that it is embarking on an experiment to test the viability of this move in Shenzhen, which is apt given that this city was the first to experience China’s major economic reforms over 30 years ago.
It is hoped that this will boost the flow of currency between China and Hong Kong, which will in turn attract foreign investors. The city-state is already emerging as a global financial district, and this further strengthens that position.
Specifically, this experiment will make it possible for banks in Hong Kong to lend renminbi directly to companies in Qianhai Bay, which some argue is risky.
“Money is fungible,” the economist Liu Lgang told the Financial Times. “Like water, it flows to low levels. So if money can flow from Hong Kong to Qianhai, the money will flow from Qianhai to other parts of China that can offer higher returns.”
Despite some concerns, most people see it is a step in the right direction. The world welcomed the announcement as it “internationalises” the currency.
Though these are tentative steps, the goal is for the Yuan to become freely convertible over the next three years, and in the not so distant future, emerge as a true global currency.
However, true to form, China was keen to downplay the impact this might have on the global economy, urging people not to get ahead of themselves.
“This is something we’ll only be experimenting with in Qianhai,” noted Liu Dongmin, a senior researcher at the Chinese Academy of Social Sciences in Beijing. “And it is far from a full opening up of China’s capital account.”
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