Hong Kong and China Open up Yuan

This may be a couple of days out of date, but it’s a significant enough event to be worth bringing up outside of the ADHD financial news cycle.  On late Thursday evening China and Hong Kong announced that they would be furthering the Yuan’s (AMEX:CYB) internationalization.  As things deteriorate in Europe and the U.S. China and the rest of the Pacific Rim will continue to make moves to lessen their dependence on those two at best stagnating markets and build in their own backyard, metaphorically speaking.

For that happen the U.S. Dollar cannot hold the same place in their economies that it does currently.  The most likely candidate for replacing the Dollar long-term, in the minds of China’s leaders, is the Chinese Yuan.  So, opening up a $63 billion swap line with Hong Kong (AMEX:EWH), the biggest such swap line with any offshore banking system in the world for the Yuan.  This will drastically increase liquidity in the Yuan in the biggest financial center in Asia; allowing companies both Chinese and otherwise the freedom to convert their revenues into and out of the Yuan with greater flexibility.

Along with the swap line they also announced that a new 23 billion Yuan issue of Dim Sum (AMEX:DSUM) bonds, government and corporate debt, is forthcoming.  2 billion of which, a small amount to be sure, will be sold in Hong Kong directly to central banks who are interested.

The Dim Sum Bond market is small but growing very rapidly, as companies find they can raise capital through them at much more favorable coupons than they can in U.S. dollars.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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