19 may 2012, hardening up

The modern history of london as a global financial centre pivots around the opportunistic eurobond leaping into the breach in 1963, when in one of kennedy's less inciteful moments, he passed the interest equalisation tax that stopped americans buying foreign securities from foreigners in the us. A similar sized opportunity, off-shore renmindi (the chinese yuan) trading, is more anticipated, and will be more competitive. As the world's second largest economy (25 june 2010), it is strange that china's is not already a hard currency, instead still pegged to the dollar. In the not too distant future though the yuan will stand on its own two strong feet, and appreciate significantly; meaning the dollar and everything else will go down. It is this anticipated effect, with the rest of the world in a race to bottom to cheapen exports and boost growth, that has likely held the chinese back, alongside their persistent fear that domestic consumption is not quite ready to fill the gap falling exports will cause. Contrary to american perception though, the yuan has been slowly strengthening, making hard yuan day that much nearer. Payment systems are also springing up to settle the yuan cross-border, and it is even becoming a store of international value, as hsbc's recent launch of a 3-year rmb bond shows - in a coup for london, where renminbi deposits are estimated to total over $17bn. This dim sum market though is delicious but limited, and on location hong kong remains far ahead. Most tellingly, central banks are becoming more familiar with the renminbi, and beginning to hold small reserves, e.g. in malaysia, nigeria and chile, where it is now 0.3% of its assets. As in all things, the chinese are cautious and long-term: constant dripping wears away a stone. The days when the renminbi joins the dollar though as a, if not the, global reserve currency (10 november 2010), are coming.