THE TTALK QUOTES 

On Global Trade & Investment

 

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No. 83 of 2014 

THURSDAY, DECEMBER 4, 2014     

 

   

Filed from Portland, Oregon  

     

Click here for Tuesday's quote from Simon Newnham on Australia and the Environmental Goods Agreement negotiations.
AN ON THE RMB BANDWAGON

"The rise of China's currency is one of the greatest developments in international finance for a century.  London is already at the forefront of this ... ."

Andrea Leadsom
December 1, 2014
CONTEXT
Andrea Leadsom is a Conservative Member of Parliament in the UK and holds the position of Economic Secretary to the Treasury.  This is a political but not cabinet-level post in that ministry.    Today's quote is from an article she wrote for City A.M. in London on the rise of China's currency.  She gives London  more than honorable mention.  In her first paragraph, Ms. Leadsom writes:

"...London is the world's most international financial centre, trading more dollars each day than the whole US, and twice as many Euros each day as the Eurozone.  And as the RMB has overtaken 13 currencies in three years to become the seventh most used currency for international payments, the latest figures show that more than half of offshore RMB trading takes place in the UK."

Ms. Leadsom also notes that the United Kingdom "has issued its own sovereign RMB bond, the first Western country to do so."

This was "largest ever non-Chinese RMB bond," according to an official UK Government press release.  And it was oversubscribed, which, in Ms. Leadsom's view, signals "the RMB's potential as a reserve currency."

In his comments on this development, Britain's Chancellor of the Exchequer, George Osborne, said:

"We need to export to fast growing economies like China, and attract more investment to our shores.  To that end, we need to make sure China's currency is used and traded here, as that will be not only good for China, but good for British jobs and investment too."

COMMENT
In Washington, the Treasury Under Secretary for International Affairs, Nathan Sheets, spoke yesterday to a Brookings Institution audience at the National Press Club.  He is still new to the job - he was confirmed by the Senate on September 18 - but he is hardly new to the issues.  His speech was a first-rate overview of America's major challenges in the global economy, including a strong section on trade.  We are likely to return to that in future entries.  The starting point for his discussion of the RMB was China's "accelerating move to a market-determined exchange rate."  Referring to commitments China made in the U.S.-China Strategic and Economic Dialogue, Mr. Sheets said, "China has made real progress but more work needs to be done."

We'll return to the Under Secretary's speech in a moment.  First, here is one more take on the phenomenon of the RMB's increasing importance. 

In September, the Center for Financial Stability held a conference at the famous New Hampshire hotel that gave birth to the post-World War II economic era.  The conference was "Bretton Woods 2014," and clearly there was a lot of talk there about the present and future roles of various currencies. Vicki Schmelzer opened her report on the event declaring, "The U.S. dollar's status as the world's premier reserve currency seems assured for now, despite sporadic efforts to break its stranglehold as well as the rise of would be competitors."

As for the RMB, one of those Ms. Schmelzer quoted at length is a Japanese academic, Professor Takatoshi Ito, from the National Graduate Institute for Policy Studies in Tokyo.  According to Professor Ito, "Beijing 'is really pushing' for yuan internationalization."

We don't doubt that that is the case.  And China is not alone.  Others are pushing too, witness Ms. Leadsom's enthusiasm for London's role as a place for the world to buy and sell RMB and the desire expressed by Canada's Chamber of Commerce for Canada become an RMB hub, as we noted in an earlier entry.

To return to Under Secretary Sheets comments, they struck us as positive and helpful.  They also struck us, however, as the product of a long-standing, intense American debate about the value of the RMB and what the U.S. should do about it, if anything.  From our perspective, that debate may have outlived its usefulness, especially if, as seems to be the case, it keeps American policy makers in Congress and elsewhere from looking at wider currency developments affecting the global economy. 
NOTES, SOURCES & LINKS
Editor's Note.  We would like to thank Joanne Thornton of Policy Connections International for her assistance with this entry.

A Century Defining Story takes you to the City A.M. article by Andrea Leadsom, which was the source for today's quote.

A Government Announcement is the official announcement of Britain's RMB bond issue, including the quotation above from the Chancellor of the Exchequer.

A Bretton Woods Discussion is the Market News International article by Vicki Schmelzer.

From the Treasury Under Secretary is a link to the speech by Under Secretary of the Treasury Nathan Sheets at the National Press Club on October 3, 2014.  The event was hosted by the Brookings Institution. 

Canada Should Be an RMB Hub is a link to the TTALK Quote of October 31, which focuses on a recent report on this issue by the Canadian Chamber of Commerce.



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