Invest in the Chinese Yuan Before It Takes Over the Financial World
It's only a matter of time before the U.S. dollar loses its more
than 50-year reign as the world's dominant reserve currency, and it
will be replaced by the Chinese yuan.
From January 2012-January 2013, transactions in yuan grew 171% in value, moving the yuan ahead of the Russian ruble to 13th place in global currency payments, up from 20th last year.
And you can bet the yuan will soon crack the top 10. In March, yuan payments grew in value 32.7%, compared with a gain of only 5.1% across all currencies.
Part of the reason for the yuan's growth is that at least half of all trade with emerging markets could be settled in yuan by 2013- 2015, which would be up from just 3% in 2010, according to HSBC.
For Money Morning readers, the rise of the yuan shouldn't be a surprise.
From January 2012-January 2013, transactions in yuan grew 171% in value, moving the yuan ahead of the Russian ruble to 13th place in global currency payments, up from 20th last year.
And you can bet the yuan will soon crack the top 10. In March, yuan payments grew in value 32.7%, compared with a gain of only 5.1% across all currencies.
Part of the reason for the yuan's growth is that at least half of all trade with emerging markets could be settled in yuan by 2013- 2015, which would be up from just 3% in 2010, according to HSBC.
For Money Morning readers, the rise of the yuan shouldn't be a surprise.
For years, Money Morning Chief Investment
Strategist Keith Fitz-Gerald has been warning investors about the
yuan's emergence as a reserve currency and has suggested ways to prepare
for its takeover.
"It's the yuan's world - the West is just living in it, or borrowing from it, as the case may be," Fitz-Gerald said earlier this year. "Demand for the yuan is growing at such a staggering rate that your financial future will be built upon it."
In contrast, the yuan has risen over 25% against the dollar since June 2005.
"China, with its 1.3 billion consumers and growing global influence, will be the clear winner of the brewing currency war," Fitz-Gerald said. "Right now, the yuan is a partially blocked currency, but that's changing very rapidly as the economic balance of power shifts east. And it will continue to shift for at least the next decade."
By 2015, the yuan is expected to be a fully convertible currency and be trading freely from London. This will really shake up currency markets.
"When the yuan truly steps onto the world's stage in 2015, the game will change forever because there will be a fourth currency that has enough liquidity to absorb global capital flows," Fitz-Gerald said. "The sacred triumvirate of the U.S. dollar, the yen and the euro will shatter."
Some markets are already making the transition.
In a deal announced last month, trade between China and Australia can now be done strictly between the yuan and the Australian dollar, whereas before units had to be exchanged in U.S. dollars. Before this new trade agreement, only the U.S. dollar and Japanese yen were directly exchangeable with the yuan.
And the U.K, France, Russia, Brazil, and India all have some sort of bilateral agreements in placefor trading with the yuan - and Germany is now contemplating joining the crowd.
So before the yuan takes over the financial world, how can investors prepare?
The most obvious way is buying the yuan itself.
This can be done directly by opening an EverBank Chinese Renminbi World Currency Access Deposit. It's IRA eligible and FDIC insured and there are no monthly account fees. You can open an account for as little as $10,000.
Another way to invest in the yuan is through an ETF like the Wisdom Tree Dreyfus Chinese Yuan ETF (NYSE: CYB).
Even though the yuan has climbed 25% against the dollar over the past eight years, Fitz-Gerald thinks its rise is just beginning.
"Many people are tempted to think the yuan is all about the money itself," Fitz-Gerald noted. "But in reality, it's a byproduct of yet more trade growth outside traditional western trading channels and payments methods."
Further Reading: For a more detailed look at how the yuan is going to affect your financial future, check out Fitz-Gerald's analysis: Why Your Financial Future Will Be Built Upon the Chinese Yuan.
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"It's the yuan's world - the West is just living in it, or borrowing from it, as the case may be," Fitz-Gerald said earlier this year. "Demand for the yuan is growing at such a staggering rate that your financial future will be built upon it."
Chinese Yuan Outshines U.S. Dollar
Since the U.S. went off the gold standard in 1971, the U.S. dollar has lost more than 80% of its value.In contrast, the yuan has risen over 25% against the dollar since June 2005.
"China, with its 1.3 billion consumers and growing global influence, will be the clear winner of the brewing currency war," Fitz-Gerald said. "Right now, the yuan is a partially blocked currency, but that's changing very rapidly as the economic balance of power shifts east. And it will continue to shift for at least the next decade."
By 2015, the yuan is expected to be a fully convertible currency and be trading freely from London. This will really shake up currency markets.
"When the yuan truly steps onto the world's stage in 2015, the game will change forever because there will be a fourth currency that has enough liquidity to absorb global capital flows," Fitz-Gerald said. "The sacred triumvirate of the U.S. dollar, the yen and the euro will shatter."
Some markets are already making the transition.
In a deal announced last month, trade between China and Australia can now be done strictly between the yuan and the Australian dollar, whereas before units had to be exchanged in U.S. dollars. Before this new trade agreement, only the U.S. dollar and Japanese yen were directly exchangeable with the yuan.
And the U.K, France, Russia, Brazil, and India all have some sort of bilateral agreements in placefor trading with the yuan - and Germany is now contemplating joining the crowd.
So before the yuan takes over the financial world, how can investors prepare?
How to Invest in the Yuan World Order
There are several ways investors can profit as the yuan emerges as this century's leading reserve currency.The most obvious way is buying the yuan itself.
This can be done directly by opening an EverBank Chinese Renminbi World Currency Access Deposit. It's IRA eligible and FDIC insured and there are no monthly account fees. You can open an account for as little as $10,000.
Another way to invest in the yuan is through an ETF like the Wisdom Tree Dreyfus Chinese Yuan ETF (NYSE: CYB).
Even though the yuan has climbed 25% against the dollar over the past eight years, Fitz-Gerald thinks its rise is just beginning.
"Many people are tempted to think the yuan is all about the money itself," Fitz-Gerald noted. "But in reality, it's a byproduct of yet more trade growth outside traditional western trading channels and payments methods."
Further Reading: For a more detailed look at how the yuan is going to affect your financial future, check out Fitz-Gerald's analysis: Why Your Financial Future Will Be Built Upon the Chinese Yuan.
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