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Suppression of withdrawals
The South China Morning Post reports that Chinese banks have lowered the daily limit for cash withdrawals in foreign currencies.
The issue was put in the spotlight on Friday when a viral video clip showed a bank teller unable to answer a furious customer, demanding to know why she was not allowed to withdraw 200 US dollars from her account denominated in dollars while it was within the limits of its quota. .
The client was so furious with this refusal that she filmed the incident on her phone at the unidentified branch of China Merchants Bank (CMB).
She also asked why the bank had insisted that she could only withdraw her savings in US dollars by converting the yuan, the Chinese currency. The cashier seemed unprepared, unable to answer the woman's questions.
It later appeared that the woman had been placed on a "watch list" of clients making frequent withdrawals.
Shanghai is not a global financial market
In 2009, Shanghai officials promised that it would be on a par with New York, London and Hong Kong by 2020.
We are in 2019 and China is not near.
According to US bankers, Chinese capital control means that Shanghai is not a global financial hub.
Restrictions on capital flows to and from China have wiped out the ambition to become an international money market. American bankers said that it was still five to ten years to regain its status as the financial capital of the East during the pre-communist period.
China's strict control of capital flows, massive government intervention in the financial markets, and the limited use of the yuan in international markets have limited Shanghai's role as a financial center.
The presence of foreign capital on the Chinese stock market in Shanghai is also minimal: less than 0.5% of the shares listed on the Shanghai Stock Exchange were held by foreign investors at the end of March, according to the data of the Stock Exchange. Shanghai.
Government intervention in the stock market is seen as a major obstacle to achieving the 2020 target.
Not ready for prime time
"Shanghai would immediately become a leading global financial center if it ended the control of capital and allowed the yuan to float freely, but Beijing gave no indication that such measures would even be contemplated," said Brock Silvers , Managing Director of Kaiyuan Capital Shanghai-based private equity firm.
Silliness of Petro-Yuan on gold back
About every month for years, I read articles on how the yuan would replace the US dollar as the reserve currency in the world.
I made fun of each of these articles and continue to do so.
For example, please consider my article from October 2017 Silliness Petro-Yuan: a reserve currency?
A huge hype is spreading about China's supposed ambitions to dethrone the dollar. The story, this time around, is China's plan to fix the price of oil in yuan using a gold futures contract. Even if it were true, the impact would be nil. Nevertheless, CNBC is now in the hype.
CNBC reports that China has big ambitions to dethrone the dollar. It could be a big hit this year.
The powerful movement was nowhere to be found or now. Here are the reasons why I posted in 2017.
Currency requirements
If China wants to assume the role of the world's reserve currency, which I strongly doubt, it will have to have a free-floating currency and the largest bond market in the world.
Political requirements
China will need the protection of property rights and the country's overall desire to maintain the yuan so that it is the world's reserve currency.
Needs of the trade balance
Finally, China should be willing to run trade deficits instead of seeking trade surpluses through subsidized exports.
Please read this last sentence again and again until it breaks down.
Mathematically, whether they like it or not, China and Japan have huge reserves in US dollars resulting from accumulated trade surpluses.
Curse of the reserve currency
Having the world's reserve currency is a curse because you have to be willing to have endless trade deficits.
Mathematically, as long as China will have surpluses, the foreign holding of yuan will not be equivalent to the foreign holding of dollars.
A mathematical corollary to massive trade deficits year after year is the need to have the largest bond market in the world.
The addition of gold in the yuan-future mix does not change the situation, if it is to add costs.
Case closed
The idea that the yuan will soon replace the dollar as the world's reserve currency is absurd for reasons of currency, political reasons and economic reasons.
Anyone who suggests the opposite does not understand foreign exchange or world trade.
Finally, given the implications of the curse of the reserve currency, I doubt very much that China is looking for what these analysts claim to have.
What has changed?
Everything from "Monetary Requirements" to "Listed Case", I wrote in 2017.
I have commented on most of these aspects well before that.
The ideas on gold and petro-yuan being new, I immediately demystified them.
Nothing has changed
- China still does not float the yuan.
- China still has no global bond market, let alone the world's largest.
- China still does not respect property rights.
- China still has capital controls, an absolute no-no.
- China is still not willing to accumulate trade deficits.
Wake me up when these five things are repaired.
Meanwhile, if someone tells you that the yuan is about to replace the dollar as the reserve currency in the world, write it down as a maverick.
We have seen such stories for a decade or more, but China is not too far away in at least five regions and may never be so far away.
Mike "Mish" Shedlock
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