China has established a clearing center for its money in the United States.
The Bank of China’s office in New York City is the first U.S. clearing center for the renminbi, or RMB.
Chinese officials made the announcement last week. Premier Li Keqiang spoke at a dinner with the Economic Club of New York. He invited other banks to work with buyers and sellers of the RMB.
“We also welcome banks in New York that meet the requirements to become a clearing bank for renminbi,” Li said. The South China Morning Post reported his comments.
Some people see China’s move as an attempt to show that the RMB, also known as the yuan, is competitive with the U.S. dollar as a major currency. They say there is no reason for China to have U.S. banks serving as clearing centers for its money.
Currently, there are clearing banks in a number of financial centers, including Hong Kong, London, Singapore and Toronto.
On October 1, the RMB is to become the fifth currency in the International Monetary Fund’s group of Special Drawing Rights. The four others are the U.S. dollar, the British pound, the Japanese yen and the euro.
Christopher Balding teaches at Peking University. He says China is buying up available RMB on international markets in an effort to increase its value. He told VOA that the value of Chinese money would drop sharply if it were freely traded.
China’s recent policy has been to keep the money stable -- to avoid sharp increases or decreases in value against other currencies. The exchange rate is currently between six and seven RMB to the dollar.
For many years, China has sought to make its money one of the important currencies of international trade.
Cornell University professor Eswar Prasad says this presents Chinese officials with difficult choices. He said, “China’s government faces a conundrum that other reserve currency economies have faced in the past - how to promote the currency’s role in global finance without losing control over the currency’s value."
Prasad said China’s actions suggest that a stable currency is more important than the RMB’s role in international finance.
Some experts say Chinese efforts to control its currency are not meant to make the country’s exports less costly and, therefore, more competitive.
Scot Kennedy is deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. He says a stable exchange rate has been most important to China in recent months.
“China is most interested in maintaining basic stability of its currency and limiting volatility,” he said.
Kennedy added, “The recent modest depreciation is not geared to support exports.”
I’m Mario Ritter.
Saibal Dasgupta reported this story for VOANews.com. Mario Ritter adapted it for Learning English. George Grow was the editor.
Words in This Story
clearing – n. the process of carrying out an exchange transaction for others
stable – adj. not changing too much or too quickly
conundrum – n. a puzzle, a confusing or difficult problem
volatility – n. the quality of changing in a sudden or extreme way
modest – adj. not by a large amount
depreciation – n. a decrease in the value of something
gear – v. to prepare for something
currency – n. money