World leaders have called on China to strengthen its currency in order to erode some of what’s seen as an unfair advantage. If China’s desires to according to plan, Chinese yuan ETFs could get a lot stronger than many anticipated.
The Chinese Central Bank will allow exporters and importers to settle cross-border trades in the yuan by 2011, reports Hao Li for The International Business Times. Furthermore, the yuan will increasingly be used as a reserve currency and be allowed to flow back into China more easily.
Such a move could, in time, result in gains for funds like WisdomTree Dreyfus Chinese Yuan (CYB) and Market Vectors Chinese Renminbi/USD ETN (CNY) as the yuan becomes more in demand. They sure could use a boost: Both funds are flat in the last three months.
China has already announced that bilateral trades with Russia and Malaysia will be done with the yuan against the ruble and ringgit, respectively.
Foreign companies will be issued yuan-denominated bonds and and the Chinese government is relaxing its currency rules so that the yuan can be more accessible to foreign financial institutions. As China continues to relax restrictions on its currency, China’s trading partners will be more apt to adopt the yuan to conduct business transactions.
Although the status of currencies such as the U.S. dollar, euro and yen is still intact, with the Chinese yuan gaining prominence, China will become a greater international financial center and its companies will gain easy access to international capital.
Max Chen contributed to this article.