Sunday, March 31, 2013

Zero Hedge — Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility

The Hedgies don't seem to get that a reserve currency is a currency that exporting nations choose to save in. Oz has made a decision to save in RMB instead of USD in exporting to China. Is that taking on exchange rate risk, or is RMB as safe a store of value as the USD now? One could argue that as long as the RMB is pegged to the USD, it doesn't matter too much and if it increases exports, no big deal.


Matt Franko said...

I'd like to see Ramanan's view on this development.... RSP,

NeilW said...

I think this idea of a reserve currency is a bit far fetched anyway.

There are lots of reserve currencies.

Most of the major currencies and quite a few minor ones are held in reserve.

Any currency that can be held by entities outside its currency area can be used as a reserve.

What looks like has happened here is that China has allowed the RBA to hold Yuan, and that means that the RBA can conduct direct liquidity operations in support of its exporters.