Mne Minicase

Case study(p83)

1. The Chinese government limits the use of RMB by controlling the trading in RMB. Most of Chinese exports were not denominated in RMB. A Chinese exporter paid in foreign currencies is not allow to keep foreign currencies proceeds in any bank account. He is required to exchange all foreign currencies for RMB at the official exchange rate set by the government. And the government limits the trading of RMB in offshore market. Most of RMB is traded in the regulated onshore Chinese market.

2. RMB is the official currency of PRC. CNY refers to the RMB traded in onshore Chinese market. CNH is the RMB traded in offshore Hong Kong market. CNY-NDFs are nondeliverable forwards based on the officially cited value of the CNY by the Chinese government.

3. The MacDonald’s bond issue is the first issue denominated in RMB by a nonfinancial non-Chinese firm in the global market. This means the multinational enterprises operating in China will have the ability to both operate and fund their business growth in Chinese RMB. The risks and costs of exchange currencies will be lower. This will boost the investments in China and the demand for RMB in the global market.

4. I think RMB has the potential to became a global currency. More Chinese exports are denominated of RMB. The demand for RMB is increasing. The economy of China looks good and strong. This back the value of RMB. One problem for the globalization of RMB is the currency policy control. The Chinese government used to controlling the use of its currency. However, since the globalization of the world economy, a controlling policy is not suitable for current situation. The Chinese government start to loosen their control, and it will keep going. For a reserve currency, a strong open bond market is needed. The bond market for RMB is new and only have small volume for now. But it has a good growth prospects due to the relaxing policy control by the Chinese government. A current account deficit is...