About a month ago, my friend “T” (Malaysian) told me that he had been “stocking up” Renmimbi (RMB), or more popularly known as the Chinese Yuan, in phases. In fact, he started acquiring the Chinese currency over the past 12 months, and was still going to buy more.
In the past two weeks, I also heard from a few other friends and relatives that they were doing the same time thing. The question that has flashed through my mind is: Could it be a mere coincidence that these individuals, who do not know each other, are doing the same; or could it be a new wave flowing among Malaysians to diversify their investments in the currency?
Generally, the simple reasons in their layperson’s understanding are:
· 1. RMB is still currently undervalued, based on articles and reports they have read from various media sources. They have read that China is intentionally suppressing the actual value of the currency in order to make its exported goods to US and other parts of the world more competitive in terms of cost.
· 2. It is anticipated that China will relax its rigid control of RMB sometime in the not-so-far future. When that happens, the currency should appreciate.
· 3.The demand for RMB will be higher as China gains momentum in economic growth and trade with the rest of the world. They have read that it is heading towards the position as the world’s top economic power. And in their simple layperson’s understanding, this factor should pep up the value of the currency to higher levels too.
Being an inquisitive guy, it is thus natural for me to probe for more information regarding the current and likely scenario of RMB in the longer term. Are their simple layperson’s reasons for stocking it up now really plausible? Well, allow me to share inputs which I have gathered from various sources. I hope you will then perceive a more panoramic view of what may or may not take place in the near and longer terms with regard to RMB.
First, I contacted “CS”, my friend who is a fund manager. Here are his views:
· 1. RMB is still pegged to US Dollar (USD). When USD appreciates, RMB should also appreciate.
· 2, No amount of buying RMB by Malaysians using Malaysian Ringgit (MYR) will appreciate RMB against MYR if the Chinese currency is still pegged to USD.
· 3.If the intention of Malaysian individuals buying RMB is for short term investment, it might make more sense since there are some signs now of the US economy slightly picking up. But for longer term, the view could be on a different perspective.
Of late, MYR exchange rate against USD has been hovering around 3.1-plus to 3.2 (appreciating level for USD) compared to when it was less than 3.0. Would this explain why the recent buying rate for RMB with MYR has recently hovered around the 0.49-0.5 (appreciating level for RMB) compared to, say, Aug. 11 this year which saw the rate at around 0.459? I leave to you to conclude whether the 1st viewpoint postulated by “CS” holds water.
To proceed further on this subject, let me list out some pertinent questions and then to be followed by responses based on extracts taken from various websites.
1. Question: Isn’t China now practising a managed float arrangement whereby RMB is allowed to float within a narrow margin around a fixed rate determined by the authority in relation to a basket of world currencies?
2. Question: Is RMB really undervalued?
3. Question: Will RMB be an international reserve currency and likely when?
4. Question: Hasn’t China begun measures to “internationalise” its currency?
5. Question: Do analysts anticipate the RMB to head for higher levels in value in the near future?
6. Question: Can a Malaysian open a RMB-denominated fixed deposit account with a bank in Malaysia?
Answer: According to a Malaysian Chinese-owned local bank’s website, RMB is in its list of foreign currency accounts. Please check it out yourself if you are interested.
I hope my sharing is useful to you…….in case you are thinking about whether to diversify into RMB.
Best Regards and Cheers!
1 comments:
Plse read below before you think RMB is immune to capital flight :
On 5 Dec 2011, PBoC cut rates from 21.5% to 21%. The RMB traded sharply down during intraday trading, only to be nudged up overnight by the PBoC fixing.
Why is that so? Because there were heavy outflow of capital because expectations of a stronger RMB have receded.
Thus, it is naive to think RMB is a sure win bet
Post a Comment