Wednesday, February 29, 2012

China's Reminbi as a Global Currency

Since the collapse of Lehman Brothers and the ensuing tsunami from Wall Street that almost swamped the financial world in 2008, China has been busy signing bilateral currency swap agreements in order to minimize the exposure of holding too many dollars.

Such swap agreements allow the two signatory nations to do business with each other using their own currency and skip having to buy dollars and settle the trade invoices in dollars.

This article co-authored with Henry Tang posted in China-U.S. Focus apropos on leap year day can be read in its entirety here.

On going tracking of bilateral swap agreements China has entered can be found here.

Thursday, February 23, 2012

Linsanity too late for Soldiers Chen and Lew

An edited version appeared on February 26, 2012 in the New America Media.

On a recent Sunday morning, I was glued to the boob tube watching a professional basketball game from the opening jump ball to the last waning second. Haven’t done this for years but suddenly I too have been swept up by the global phenomenon of linsanity.

By now, everybody knows linsanity refers to Jeremy Lin, the basketball star from Harvard, undrafted by any of the NBA teams, who warmed the bench for two other professional teams before coming off the bench for the NY Knicks in an act of desperation by the coach. Lin promptly led his team to a win, the first of nine wins in the next eleven games. He became the toast of New York and an instant worldwide sensation.

The Knicks took on Dallas Mavericks, last year’s NBA champ and I saw a real deal. Lin drove through a forest of opponents for layups or passed to wide-open teammates. He sank long-range three pointers in crucial moments or he drew the defenders so that his teammates were unimpeded as they threw in three point bombs. He was fearless and physical as the game dictated.

In the post game analysis, the great Magic Johnson unequivocally declared that Lin’s star presence would be in the NBA for a long time. None of his fellow panelists disagreed.

Lin’s heroics on the court immediately drew a following from the Asian communities of the world, heretofore thought too small, too short and too frail to play this contact sport. But Lin didn’t just become a role model for Asian Americans. He has won the ultimate accolade: every kid--black, brown or white--on the neighborhood playground now aspires to be a Jeremy Lin.

Linsanity also caused me to reflect on the tragic fate of Danny Chen and Harry Lew, two American soldiers who took their own lives in Afghanistan. These were two unrelated victims of hazing by their fellow soldiers. Sadly the misery they experienced was so brutal and unrelenting that they found ending their young lives the only way out of their torment.

These incidents reflect a failure of American values and the leadership of the military: The former because America continues to regard people of Asian ancestry as not American, but as the other; the latter because the military not only failed to prevent such racism from their ranks but also failed to impose appropriate penalty on the perpetrators for the hate crimes.

Hate crimes against African Americans evoke high decibel outcries but hardly a murmur when perpetrated against Asian Americans.

It will be up to the Asian American community to make noise in order to rectify the wrong. During the first Gulf War, friendly missiles shot down two American helicopters. The pilots who pulled the trigger were exonerated but not Captain Jim Wang of the Awac flying surveillance.

The late Sam Chu Lin, a mainstream media star who became a voice of conscience, rallied the Chinese American community and with the help of the Committee of 100 made sure that Captain Wang had proper defense counsel leading to dismissal of all charges against him.

Wen Ho Lee was the designated scapegoat and sacrificial lamb in the political struggle between the Republican Congress and Democrat President Clinton. He would have rotted in jail as a spy for China had the Asian American community not come to his support. Sam played an active role in this case as well.

In this case, the American public took no pains to make the distinction as to whether Lee, who came from Taiwan, was Chinese or not. To this day, some still considers him a spy though the court found him not guilty of any espionage charges. Those that still accuse Lee of spying have also forgotten that the court did find the FBI lying in court under oath.

Maybe Jeremy Lin with his continued success will erase some of the prejudices that reside in America against Asians. Perhaps linsanity, had it occurred a couple years earlier, could have blunted some of the bias of the American soldiers and caused them to regard ethnic Asian in their ranks as less gook and more fellow soldiers.

But we can’t count on Jeremy Lin to carry entire load for racial equality on his shoulders. We, the Asian American community, must stand up and demand our rights as full fledged, tax paying, law abiding citizens to all the respect pertaining thereto just like the next person.

Sunday, February 5, 2012

The Making of Renminbi on Becoming a Global Currency

In 2002, I remember visiting the Leaning Tower of Pisa as a tourist. I was surprised to see a souvenir stand displaying a prominent sign: "Your Reminbi are welcome here" written in Chinese. This was significant on two counts. One, there were already significant amount of tourists from China visiting Europe and two, the Chinese yuan was becoming a global currency, albeit unofficially.

After the financial crisis of 2008, it became obvious that the dollar was on a long term path of declining value. While China has not been the only country to want to avoid holding on to too many dollars, China has been the busiest in entering currency swaps with its many trading partners. Bilateral currency swaps allow the participating nations to pay their trade invoices with their own currency and not with dollars.

Here is a compilation of swap agreements China has entered to date.
2008, December - South Korea, 180 bn yuan since extended
2009, January - Hong Kong, 200 bn yuan since doubled to 400 bn in Nov 2011
February - Malaysia, 80 bn yuan, extended 2/12 & increased to 180 bn yuan
March - Indonesia, 100 bn yuan
- Belarus, 20 bn yuan
- Argentina, 70 bn yuan
June - Brazil, no exact amount known
2010, June - Iceland, 3.5 bn yuan
July - Singapore, 150 bn yuan
2011, April - Uzbekistan, 0.7 bn yuan
- Mongolia, 5 bn yuan, doubled to 10 bn yuan in March 2012
June - Kazakstan, 70 bn yuan
December - Thailand, 70 bn yuan
Pakistan, 10 bn yuan
Japan, no exact amount known
2012, January - U.A.E., 35 bn yuan
February - Turkey, 10 bn yuan
March - Australia, 200 bn yuan

Other imminent swap deals currently under discussion include Nigeria and South Africa. The number of deals are likely to accelerate. As more countries hold and accept Reminbi, the more appealing the yuan will become as the alternative to holding too many dollars and more bilateral swap agreements will result.

Even if all the swap agreements were drawn down in full, there might be as much as two trillion yuan circulating outside of China. This might be enough liquidity for the renminbi to act as a de facto global currency but not enough to replace the dollar as the hard currency.

We can be sure, however, is that the dollar will cease to be the only global currency because no one will be satisfied with owning a currency that decrease in value with time. Japan has entered a currency swap deal not just with China but also with India, and Turkey with Malaysia. These are some examples how others are looking for ways of going around the dollar.