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Wednesday, June 1, 2011

Currency Megatrends Euro VS Yuan

The Euro may survive, but the block of countries that are tied up to the monetary policies are suffocating because there is no flexibility in making moves to strengthen or weaken (devalue) a currency - like elsewhere where a sovereign country can do so to their own currency.

When Japan was a powerhouse rising from the ashes of World War 2, many had predicted their currency the yen would power up to be an international trading currency. Alas, it did not due to several reasons stemming from the inward-looking business culture and government policies, as well as the "lost decade" of deflation that eventually weaken the momentum of acceptance.

Surprisingly, the yen's power or strength made it unappealing to foreign nations to subscribe or buy.

Internationalization of the Renminbi: History, Theories and Policies (Enrich Series on Chinese Currency Reform)China: A Macro History (An East Gate Book)Treasures of China
Now we have one new Olympian Asian currency. Which is not a surprise. Can the renminbi, the people's money, the yuan - become widely acceptable? Whether it is part government policy or not, the inevitable is that the yuan will attain a higher status than the yen and euro eventually.

The past 2-3 years, the RMB currency has surpassed the value of its sibling, the Hong Kong Dollar by 20%. In 2006, 1 Hong Kong Dollar gets you 1.20 yuan. Today it is the reverse. Some years ago, I was assuming when the HKD and RMB hits parity, there is a chance for these currencies to unify. Now it seems, RMB does not need HKD's branding anymore.

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