The Chinese Yuan Is On Sale

Includes: CHIE, CHII, RMB
by: Retirefund

Last year I went down to our local bank and I picked up some cash. The cash I bought was Chinese Renminbi. After I told my wife, she asked why I was buying Chinese money and if I was planning a trip to China.

In point of fact, I will go to China one day on my travels, as it is one area of the world I have not yet visited. However, that was not the point of my visit to the bank. I have since made several similar visits to the bank, to buy a currency that was, in my humble opinion, on sale.

Now you don't have to buy cash. New ETFs are cropping up to take advantage of this currency sale. They include RMB, CHII, CHIA, and CHIE. Each one seems to offer a variant on the theme, so do your homework before investing.

China has a monster surplus of foreign exchange holdings, including $1.3T in U.S Treasuries. It is also noteworthy, that China has been buying gold, regularly, for the past several years for this account and has encouraged it's citizens to buy gold for the past three years. This was something unheard of in centuries past. No doubt, Chinese authorities have been paying attention to the rise in gold since 1997.

The Pan Asia Exchange has now created the first ever rolling spot contract that will allow individual Chinese investors to buy 10 ounces (the minimum transaction) of gold contracts in RMB, through their "bank" account, and directly linked to the exchange. For instance, if you have an account with the Agriculture Bank of China or ABC, you can instantly buy gold, or gold contracts.

This means 320 million new retail customers and 2.7 million corporate clients, all with the same Chinese appetite for precious metals, now able to buy gold in 10 ounce increments with just a mouse click!

China recently announced it is settling a number of international transactions with South American countries, in it's own currency, the Renminbi, instead of changing it into dollars first, to accommodate the transaction, as has been the case since the advent of the dollar as the world reserve currency after Breton Woods. This development alone should give you pause to consider this and similar articles.

As an investor, you should be aware of these new developments, as they beg the following questions.
Does China see a gold back Renminbi in it's future? Do the mandarins of the Chinese economy see the U.S. Dollar as a falling star? Is this the first crack in the dollar as the world's only reserve currency? Is it the first shot being fired in a worldwide currency battle? Is China merely pointing out that a basket of other world currencies should be considered along with gold, as the world's new reserve currency?

I will leave those questions for much brighter minds than I. In the mean time I am a holder of gold, silver real estate and equities, and I've been buying some Renminbi on the side, as I do not see much of a downside to this currency for years to come. It would appear, with the rise in Chinese currency ETF's, that some managers are thinking the same way.

Today President Obama, in the middle of an election year, has announced an international trade case against China in the area of rare earth elements. America has been demanding a free floating Renminbi for several years now. Is this the tipping point for the Renminbi?

What do you think?

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CHII, RMB, CHIA, CHIE, CHIM over the next 72 hours.