I saw an article saying CNY was to be tradeable as part of the reforms in China, it was allegedly predicted to be second only to USD by 2015. If this is true it would mean huge volatility in the FX market for a while, does anyone else feel the same?
I hope so. I understand China’s economy will eclipse the US by 2020.
But i heard from another thread that FX trading in China right now was bordering on illegal because of the regulation policies they have in place, how would this work out? unless they do a 180 on their trading policies
I don’t expect CNY to be tradeable in the same (relatively unhindered) way as USD, GBP, AUD or CHF.
The Chinese economy is big (huge). No doubt about that. But there are several state-supported and mandated restrictions that make CNY more of a “wait and see” option rather than a freely tradeable currency. That is till more clarity can be got about exactly how those reforms are going to pan out.
The political forces behind emerging economies are, in general, quite wary of pure market-driven forces deciding the value of their currency (irrespective of what they might claim). They still like to “tweak and control” things from behind the curtains. Hold the reins and keep them in line through interventions.
Case in point is the Indian Rupee, the currency of another rising Asian power. At this stage, INR is only partly convertible and trades in a very restrictive and sometimes unpredictable way based on the changing political climate and current account deficit concerns. It’s a similar story among other up-and-coming economies as well, say, for example, Brazil.
So while CNY does seem like a welcome addition to the FX basket, I don’t expect it to be “second” to USD anytime soon. At least not by 2015, that’s for sure.