The average American businessmen as well as the majority of American policy makers scoff at the possibility, at least in the near term of the Chinese RMB becoming fully convertible and the concurrent demise of the US dollar replaced by the insidious Yuan. After all they point to the fact that the US economy is significantly larger the China’s economy and that our political institutions and economic transparency foster faith in the Greenback. But Americans these days tend to be more focused on a romantic self portrait and not the cold hard realities of the global economy.
The fact of the matter is that China is moving very quickly to a fully convertible currency with the Chinese government supporting outward capital outflows by non-state Chinese investors and the development of a RMB denominated debt market commonly known as Dim-Sum bonds. In fact our firm is now in the process of raising over $1Billion in Dim-Sum debt on behalf of Australian property developers that have found that investors favor RMB denominated debt and that most investors have little faith in US dollar denominated debt. Why. Well for one the United States has more than $14 Trillion dollar debt with no real political willpower to make the hard decisions and sacrifices required to deal with it. Second, unlike other governments that have learned painful lessons post 2008 our Fed continues to print trillions of dollars of money while boldly telling the international community that this will not create asset bubbles or lead to inflation. And finally our trajectory as a country is completely off-course as we look to curtail investments in education, R&D and infrastructure while proudly proclaiming that we have the world’s largest military. The Chinese government had already begun shifting away from purchases of US treasuries and into hard assets and as China’s wealth and investment in a 21st century infrastructure continue to grow so will global confidence in the Chinese Yuan grow the world’s next reserve currency!