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COMMODITY WATCH

Bunzl Distribution Newsletter January 2015

Money-Changers at Bay Monetary policies and falling inflation

are behind currency turmoil From the print edition | The Economist

Published: February 7, 2015

EARLY trade was conducted in whatever currency was available. Coins circulated across borders in a bewildering variety of forms, creating the need for middlemen to value one token against another. These were the “money-changers” whom Jesus threw out of the temple. Two thousand years later the foreign-

exchange markets are still in turmoil. In

January the Swiss National Bank aban-

doned its policy of capping the Swiss franc

against the euro, catching many traders

and investors by surprise. As the franc

rose by 30% in a few minutes, many for-

eign-exchange brokers lost money (one

went bust) and a hedge-fund manager,

Everest Capital, lost so much that it had to

close its main fund. Eastern Europeans

who had taken out mortgages in Swiss

francs also suffered – so much so that

Croatia voted to peg its currency, the ku-

na, against the franc.

Other currencies are also under pressure. The Russian rouble has plunged against the dollar in the face of a declining oil price and sanctions by the West. This week the Reserve Bank of Australia unveiled a sur-prise rate cut, sending the Aussie dollar down to its lowest level against the US dollar since May 2009. Denmark has had to cut interest rates three times, further and further into negative territory, in order to discourage capital inflows that were threatening its peg against the euro. What is behind this sudden burst of cur-rency volatility, which follows a quiet peri-od in foreign-exchange markets (see chart 1)? In large part, it is caused by a diver-gence in monetary policy among the big three central banks – the Federal Reserve, the European Central Bank and the Bank of Japan. The Fed has stopped its asset purchases and may even push up interest rates this year. But the BoJ is still imple-menting a policy of quantitative easing (QE), and the ECB is just about to start one.

See Money-Changers at Bay on pg. 7

Contents

Resin

Aluminum

Paper and Pulp

Energy

Foreign Currency

2

4

4

5

6

Contact us

E-mail us with your comments

and suggestions.

Tetiana Tarasova

Bunzl Distribution

[email protected]

Our Goal is:

To show market trends that

affect Bunzl Distribution’s

final product cost.

To provide market and eco-

nomical data to internal

readers.

Yuan for All

From the print edition | The Economist

Published: January 31, 2015

THE International

Monetary Fund is

meant to be the

firefighter of the

world economy.

Recently, though, it

is China that has

responded to the

ringing of alarms.

First, it lent Argenti-

na cash to replen-

ish its dwindling foreign-exchange reserves. Next, with the

rouble crashing, China offered credit to Russia. Then Vene-

zuela begged for funds to stave off a default. Strategic in-

terests dictate where China points its financial hose: these

countries supply it with oil and food. But if a government

anywhere goes bust, it now has an alternative to the IMF.

In the past six months China has also invaded the develop-

ment patch of the other great Bretton Woods institution, the

World Bank. First, China—along with Brazil, Russia, India

and South Africa – established the New Development

Bank. Then it unveiled the Asian Infrastructure Investment

Bank. Finally it launched the Silk Road Fund, backed by yet

another development bank. None has started operating,

but China has pledged more than $140 billion to these new

institutions.

China’s clout should not be exaggerated. The yuan is not

yet fully convertible and will not be for several years, which

limits its influence. But the country’s leaders are clearly

marshalling the cash and the strategy to become a banker

to the world. This is at once welcome and worrying.

See Yuan for All on pg. 8

mailto:[email protected]

2

Bunzl Distribution Newsletter | Commodity Watch January 2015

2

IMPLEMENTED INCREASE

Aluminum Products – 8-10%

All PP items – 6-8%

PENDING INCREASE

Paper cups, containers – 4-10%

DOMESTIC SUPPLIER PRICE INCREASES

Sources: Chemical Data, PolymerTrack, Malaysian Rubber Board.

*Number of months moving in current direction.

Dec-2014,

$/lb

Nov-2014,

$/lb

Change,

%

Trend*

(months)

HDPE $0.835 $0.875 -4.57% Decreasing ↓ 2

LDPE $0.900 $0.940 -4.26% Decreasing ↓ 2

LLDPE $0.820 $0.860 -4.65% Decreasing ↓ 2

PET $0.725 $0.755 -3.97% Decreasing ↓ 4

PP $0.835 $0.930 -10.22% Decreasing ↓ 2

PS G-P $1.205 $1.245 -3.21% Decreasing ↓ 4

HIPS $1.315 $1.355 -2.95% Decreasing ↓ 4

PVC $0.920 $0.950 -3.16% Decreasing ↓ 2

HDPE $0.588 $0.644 -8.69% Decreasing ↓ 5

LDPE $0.617 $0.674 -8.43% Decreasing ↓ 5


PET $0.459 $0.490 -6.40% Decreasing ↓ 5

PP $0.585 $0.684 -14.43% Decreasing ↓ 5

PS $0.565 $0.677 -16.59% Decreasing ↓ 5

PVC $0.384 $0.433 -11.44% Decreasing ↓ 4

NATURAL RUBBER LATEX, Sen/Kg 362.23 397.13 -8.79% Decreasing ↓ 1

HDPE $0.706 $0.731 -3.45% Decreasing ↓ 5

LDPE $0.740 $0.788 -6.12% Decreasing ↓ 5


PET $0.584 $0.620 -5.82% Decreasing ↓ 5

PP $0.714 $0.757 -5.73% Decreasing ↓ 5

PS $0.765 $0.838 -8.76% Decreasing ↓ 5

PVC $0.420 $0.443 -5.39% Decreasing ↓ 5

Resin Price Change: Dec-2014 to Nov-2014

Direction of change

North America

Asia

Europe

3

High Density Polyethylene

The US HDPE price de-

creased by 4.57% in De-

cember and settled at

$0.835/lb. The Asian HDPE

price has dropped by

8.69% and was assessed

at $0.588/lb. The price of

HDPE in Europe went

down by 3.45% and settled

at $0.706/lb.

3

Low Density Polyethylene

December’s LDPE price

decreased by 8.43% in

Asia and was assessed at

$0.617/lb. US LDPE price

decreased by 4.26% and

settled at $0.9/lb. Europe’s

LDPE price went down by

6.12% and was assessed

at $0.74/lb.

Linear Low Density Polyethylene

December’s LLDPE prices

in the US decreased by

4.65% and were assessed

at $0.82/lb. The Asian

LLDPE prices went down

by 8.75% and settled at

$0.592/lb. The LLDPE

prices in Europe dropped

by 5.31% to $0.726/lb.

Polyethylene Terephthalate

US PET price decreased

by 3.97% in December

and was assessed at

$0.725/lb. The PET price

in Asia went down by

6.4% to $0.459/lb. Eu-

rope’s PET price dropped

by 5.82% to $0.584/lb.

Polypropylene

The PP price in US de-

creased by 10.22% in De-

cember and was assessed

at $0.835/lb. The Asian PP

price went down by

14.43% to $0.585/lb. Eu-

rope’s PP price dropped


$0.714/lb.

Polystyrene

US PS G-P and HIPS pric-

es decreased by 3.21%

and 2.95% and were as-

sessed at $1.205/lb and

$1.315/lb respectively. The

PS price in Asia went down

by 16.59% to $0.565/lb. Europe’s price for PS

dropped by 8.76% and

settled at $0.765/lb.

Polyvinyl Chloride

US PVC price decreased


$0.92/lb in December.

Asian PVC price dropped

by 11.44% to $0.384/lb.

And PVC price in Europe

went down by 5.39% to

$0.42/lb.

Natural Rubber Latex

In December, latex prices

decreased by 8.79% and

were assessed at 362.23

Sen/Kg.

Latex prices remained

pretty low since December

2012.


Sources: Chemical Data, PolymerTrack, Malaysian Rubber Board.

$0.50

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95HDPE, $/lb

HDPE USA HDPE ASIA HDPE Europe

* All prices from January 2015 are estimated.

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

$1.00LDPE, $/lb

LDPE USA LDPE ASIA LDPE Europe


$0.50

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95LLDPE, $/lb

LLDPE USA LLDPE ASIA LLDPE Europe



$0.45

$0.55

$0.65

$0.75

$0.85

$0.95

$1.05PP, $/lb

PP USA PP ASIA PP Europe

$300

$350

$400

$450

$500

$550

$600

$650

$700LATEX, Sen/kg

$0.35

$0.45

$0.55

$0.65

$0.75

$0.85

$0.95

PET, $/lb

PET USA PET ASIA PET Europe


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50PS, $/lb

PS G-P USA HIPS USA PS ASIA PS Europe


$0.35

$0.45

$0.55

$0.65

$0.75

$0.85

$0.95

$1.05PVC, $/lb

PVC USA PVC ASIA PVC Europe


ALUMINUM

Aluminum prices decreased by 8.72% in December.

Prices for Aluminum on the London Metal Exchange were assessed at

$1,828/mt in December.

4

PAPER AND PULP

Northern bleached softwood kraft prices decreased by 0.98% in December

and were assessed at $1,010/ton.

The prices for 30# KRAFT UNBLEACHED BAG and 70# KRAFT UN-

BLEACHED SACK remained unchanged in December and settled at

$1,175/ton and $985/ton respectively.

Solid bleached sulphate prices remained unchanged and were assessed

at $1,170/ton in December.

WASTEPAPER

The price for WASTEPAPER remained unchanged in December and was

assessed at $153/ton.

The price for WASTEPAPER in December 2014 increased by 3.38% com-

pared to December’s 2013 price.


Sources: LME, P&P weekly.

$1,650

$1,750

$1,850

$1,950

$2,050

$2,150

$2,250ALUMINUM, $/ton

$800

$850

$900

$950

$1,000

$1,050

$1,100

$1,150

$1,200PAPER AND PULP, $/ton

NBSK SBS BOARD30# KRAFT UN BLEACHED BAG 70# KRAFT UN BLEACHED SACK

$140

$145

$150

$155

$160

$165

$170WASTEPAPER, $/ton

Dec-2014,

$/ton

Nov-2014,

$/ton

Change,

%

Trend*

(months)

NBSK $1,010 $1,020 -0.98% Decreasing ↓ 2

SBS BOARD $1,170 $1,170 0.00% No change ↔ 8

30# KRAFT UNBLEACHED BAG $1,175 $1,175 0.00% No change ↔ 8

70# KRAFT UNBLEACHED SACK $985 $985 0.00% No change ↔ 8

WASTEPAPER $153 $153 0.00% No change ↔ 1

Paper and Pulp Price Change: Dec-2014 to Nov-2014

Direction of change

*Number of months moving in current direction.

5

5


Sources: U.S. Energy Information Administration (EIA).

ENERGY

December was the sixth consecutive month in which

monthly average Brent prices decreased, falling $17/

barrel (bbl) from November to a monthly average of $62/

bbl, the lowest since May 2009. The December price

decline reflects continued growth in U.S. tight oil produc-

tion, strong global supply, and weakening outlooks for

the global economy and oil demand growth.

EIA forecasts that Brent crude oil prices will average

$58/bbl in 2015 and $75/bbl in 2016, with annual aver-

age West Texas Intermediate (WTI) prices expected to

be $3/bbl to $4/bbl below Brent. The current values of

futures and options contracts suggest very high uncer-

tainty in the price outlook. WTI futures contracts for April

2015 delivery, traded during the five-day period ending

January 8, averaged $51/bbl, establishing the lower and

upper limits of the 95% confidence interval for the mar-

ket's expectations of monthly average WTI prices in

April 2015 at $34/bbl and $76/bbl, respectively. The

95% confidence interval for market expectations widens

considerably over time, with lower and upper limits of

$28 and $112 for prices in December 2015.

Total U.S. crude oil production averaged an estimated

9.2 million barrels per day (bbl/d) in December. Forecast

total crude oil production averages 9.3 million bbl/d in

2015. Under EIA's price forecast, projected crude oil

production averages 9.5 million bbl/d in 2016, which

would be the second-highest annual average level of

production in U.S. history; the highest was 9.6 million

bbl/d in 1970.

Driven largely by falling crude oil prices, U.S. weekly

regular gasoline retail prices averaged $2.14/gallon (gal)

on January 12, the lowest since May 4, 2009. U.S. regu-

lar gasoline retail prices are projected to average $2.16/

gal in the first quarter of 2015. EIA expects U.S. regular

gasoline retail prices, which averaged $3.36/gal in 2014,

to average $2.33/gal in 2015. The average household is

now expected to spend about $750 less for gasoline in

2015 compared with last year because of lower prices.

The projected regular gasoline retail price increases to

an average of $2.72/gal in 2016.

Natural gas working inventories on January 2 totaled

3.09 trillion cubic feet (Tcf), 0.25 Tcf (9%) above the level

at the same time a year ago and 0.07 Tcf (2%) below the

previous five-year average (2010-14). EIA expects the

Henry Hub natural gas spot price to average $3.52/

million British thermal units (MMBtu) this winter com-

pared with $4.51/MMBtu last winter, reflecting both lower

-than-expected space heating demand and higher natu-

ral gas production this winter. Turning to annual

measures, EIA expects the Henry Hub natural gas spot

price to average $3.44/MMBtu in 2015 and $3.86/MMBtu

in 2016, compared with $4.39/MMBtu in 2014.


$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$6.0

$6.5

Natural Gas, Dollars/Mil. BTUs

$40

$50

$60

$70

$80

$90

$100

$110

$120

Crude Oil, Dollars per BarrelCrude oil - Cushing OK WTI Crude oil - Europe Brent

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

$3.75

$4.00

U.S. Regular-grade Retail Gasoline, Dollars per Gallon

Short-Term Energy Outlook

6

6


Sources: http://www.x-rates.com/

http://www.oanda.com/currency/converter/

0.65

0.70

0.75

0.80

0.85

0.90Euro, per 1 USD

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000Indonesian Rupiah, per 1 USD

28.50

29.00

29.50

30.00

30.50

31.00

31.50

32.00

32.50

33.00

33.50Thai Baht, per 1 USD

20,500

20,600

20,700

20,800

20,900

21,000

21,100

21,200Vietnamese Dong, per 1 USD

FOREIGN CURRENCY – Outlook

5.85

5.95

6.05

6.15

6.25

6.35

6.45Chinese Yuan, per 1 USD

2.95

3.00

3.05

3.10

3.15

3.20

3.25

3.30

3.35Malaysian Ringgit, per 1 USD

Renminbi Joins Top Five Most-Used Currencies By Josh Noble | Financial Times

Published: January 28, 2015

China’s renminbi has clocked up another

major milestone on its march towards in-

ternationalisation by breaking into the top

five most-used global payment currencies.

According to data from Swift, the interna-

tional currency clearing system, 2.2 per

cent of the world’s payments were con-

ducted using the Chinese currency in De-

cember, putting it above both the Canadi-

an and Australian dollars for the first time.

The renminbi now sits just behind the Jap-

anese yen, which was used for 2.7 per

cent of transactions last month, the British

pound, the euro and the top-ranked US

dollar.

Swift’s Wim Raymaekers said the latest

data confirmed the renminbi’s “transition

from an ‘emerging’ to a ‘business as usu-

al’ payment currency”.

Use of the renminbi is still well behind that

of the euro and the dollar, which together

account for three-quarters of all transac-

tions, but growth has been rapid. During

2014, payments made in the Chinese cur-

rency more than doubled from the previ-

ous year, and have risen 361 per cent

since the end of 2012.

Evan Goldstein, head of renminbi solu-

tions at Deutsche Bank, said the rise to

fifth placing was a “natural outcome” as

multinationals and investors – especially

hedge funds – step up their use of the

Chinese currency.

Beijing has taken a number of steps to

help boost global use of its currency in the

past year, such as broadening renminbi

investment options with the launch of the

Shanghai-Hong Kong Stock Connect, a

cross-border share trading scheme.

China also has been adding new currency

swap agreements with central banks

across the world, establishing direct trad-

ing between the renminbi and various oth-

er currencies, and appointing clearing

banks in a number of financial centres.

China Construction Bank was named the

official clearing bank for London – the

world’s main centre for currency trading –

last June, part of a broader push to bolster

renminbi business in the UK.

There was also a rise in issuance last year

of offshore debt sold in the Chinese cur-

rency – often referred to as dim sum

bonds. Borrowers raised $30.1bn through

dim sum bonds, according to Dealogic,

more than double the previous record of

$13.1bn set in 2012.

During the year, the UK Treasury became

the first foreign national government to

raise money from a renminbi bond.

Meanwhile, looser regulations on cross-

border lending has allowed international

companies to move renminbi in and out of

China far more easily.

Standard Chartered expects total offshore

renminbi assets to hit Rmb3.2tn ($512bn)

by the end of this year, with growth of 18

per cent. The fastest-growing area, the

bank says, will be in renminbi loans.

See Renminbi Joins Top Five Most-Used Curren-cies on pg. 9

70

80

90

100

110

120

130Japanese Yen, per 1 USD

http://www.x-rates.com/

http://www.oanda.com/currency/converter/

http://www.ft.com/intl/cms/s/0/4ee67336-7edf-11e4-b83e-00144feabdc0.html#axzz3Pu0ZYkkt

http://www.ft.com/intl/cms/s/0/4ee67336-7edf-11e4-b83e-00144feabdc0.html#axzz3Pu0ZYkkt

http://www.ft.com/reports/future-of-the-renminbi

http://www.ft.com/markets/currencies

http://www.ft.com/markets/currencies

http://www.ft.com/intl/cms/s/0/2485802e-2ea2-11e4-afe4-00144feabdc0.html?siteedition=intl

http://www.ft.com/intl/cms/s/0/2afc3758-73b8-11e4-82a6-00144feabdc0.html#axzz3Q5IRMb3q

http://markets.ft.com/tearsheets/performance.asp?s=hk:601939

http://www.ft.com/intl/cms/s/0/86fbd1aa-f7c9-11e3-90fa-00144feabdc0.html?siteedition=intl#axzz3Q4qJU9so

7

7


Money-Changers at Bay Continued from pg. 1

These diverging poli-

cies reflect economic

fundamentals. The

American economy is

growing at a decent

rate; both Japan and

the euro zone are

struggling to generate

a sustainable recov-

ery. Like Japan, the

euro zone is teetering

on the brink of defla-

tion. Helpful though it is to consumers, the recent fall in

the oil price has sent the euro area’s headline inflation rate

negative. Lower inflation is causing central banks around

the world to ease policy: 12 have done so since the start

of November.

In such circumstances, a lower exchange rate is often one

of the goals of monetary policy. Since the start of 2014,

the yen has fallen by 11% against the dollar and by 17%

against the euro. A weaker currency makes life easier for

exporters (boosting the economy) and also pushes up im-

port prices (making deflation less likely). But foreign-

exchange markets are a zero-sum game: for one currency

to fall, another must rise. A country with a rising currency

will be tempted to seek a depreciation of its own, for fear

of importing the deflation that others are trying to offload.

Foreign-exchange volatility can also cause problems for

companies and investors. That is why the world used to

favour fixed exchange-rate systems (such as Bretton

Woods, which operated from 1944 to the early 1970s). It is

also why many countries still choose to peg their curren-

cies to the dollar or the euro. With the dollar rising and the

euro falling, pegging countries have to follow suit. That

may require tightening monetary policy in dollar-bloc coun-

tries and weakening it in the euro bloc (hence all those

Danish rate cuts).

Pegs produce stability in the short term. Countries can use

them to bolster the credibility of their economic plans.

When Argentina was trying to shake off the hyperinflation

of the 1970s and 1980s, it adopted a currency board that

kept the peso at parity with the dollar. Britain joined the

European exchange-rate mechanism (ERM) in 1990 in the

hope of importing some of Germany’s inflation-busting

success.

But pegs have a number of problems. The first is that oth-

er economic goals need to be subordinated to the ex-

change rate. That may not be a problem if the economy

with the peg is closely tied to the one its currency is

pegged to: monetary-policy changes in the one will be ap-

propriate in the other. But that was not the case with Brit-

ain and Germany in the early 1990s: the tightening need-

ed to keep the pound in the ERM proved too painful for

the British economy to bear.

In the era of the classical gold standard, in the late 19th

century, nations were governed by men drawn from the

creditor classes. It was no surprise that sound money was

their priority. But in an era of mass democracy, that is no

longer the case. Few voters care about the exchange rate,

but they do care about borrowing costs and jobs. Markets

know this, giving them an incentive to attack pegs that

lack credibility.

A second problem with pegs relates to the way that ex-

change rates are set. One theory, called purchasing-

power parity, holds that currencies will move in line with

the prices of tradable goods. If one country has a higher

inflation rate than another, its goods will become more

expensive and it will lose market share. If that happens, its

currency should fall until prices are back in line. Our rough

measure of currency values, the Big Mac index, reflects

this logic. But as chart 2 shows, currencies can deviate

quite a long way from their apparent fair value and stay

there.

One reason for this diver-

gence is the effect of in-

vestment flows. Most

currency transactions

have little to do with ex-

ports and imports. The

daily value of world

goods trade in 2013 was

$52 billion; daily foreign-

exchange turnover in the

same year was $5.3 tril-

lion, a thousand times

larger. Investors are forever switching from one currency

8

8


Money-Changers at Bay

Continued from pg. 7

to another in search of a better return. A common tactic is

the “carry trade”, borrowing money in a currency with a low

interest rate and investing the proceeds in a country with a

higher one. Such huge flows of money make it harder to

maintain pegs. The ultra-low rates that pegs such as Den-

mark’s require risk inflating asset bubbles; house prices

there are rising. Negative rates can also cut into banks’ net

interest margins.

A related issue is that companies and banks in the pegging

country may borrow in the target currency, particularly if it

offers lower rates. If the peg breaks, such companies may

get into deep financial trouble, since the cost of repaying

foreign debts will soar.

That problem was at the heart of the Asian crisis of the late

1990s, when many tiger economies suddenly saw their

currencies fall against the dollar. The episode echoed the

“third-world debt crisis” of the 1980s, when many countries

(mostly in Latin America) struggled to pay back their dollar

debts. Both episodes occurred in the middle of strong dol-

lar runs. So if the dollar is at the start of another bull mar-

ket, as many commentators believe, there could be even

more volatility ahead.

Where might it occur? Many Asian countries operate with

trading bands against the dollar rather than targeting a

specific rate. Singapore has already made an adjustment

to its band, allowing its currency to weaken against the

dollar to make sure its exports stay competitive. Other

Asian countries may follow suit, largely by lowering interest

rates. They have plenty of scope to do this since lower

commodity prices have reduced inflation and improved

their trading positions.

The big question is what China will do. After many years in

which the yuan steadily appreciated against the dollar,

markets expect a small depreciation in 2015. The Chinese

have a fine line to tread: they will not want to lose competi-

tive ground to their neighbours but, given their trade sur-

plus, too aggressive a depreciation would annoy many

Americans. The tectonic plates are shifting in the world

economy, subducting some currencies and thrusting up

others. But a few old grievances are unshakeable.ᴥ

Yuan for All

Continued from pg. 1

It is welcome because it is in everyone’s interest to have

China’s vast savings, stashed away for too long in low-

yielding American government bonds, diverted to more

useful causes. For poor countries that need better roads

and ports, Chinese capital could be a godsend.

The worries relate to how China may wield its power. The

World Bank and the IMF have been criticised for attaching

too many conditions to loans. China, by contrast, is unde-

manding, worryingly so. The $50 billion that Chinese banks

have lent to Venezuela since 2007 bought that country’s

leaders time to wreck the economy, as well as allowing

them to continue to thumb their noses at America. The fear

is that, as international use of the yuan grows, China will

start to provide pariah states with a means to evade West-

ern financial sanctions, thus subverting the diplomatic or-

der as well as the financial one.

In fact the evidence suggests China’s goals are less sinis-

ter. It is not seeking to displace established multilateral

institutions, but to gain the power befitting an economy of

its size. Moreover, its activism is partly a response to

America’s reprehensible failure to ratify reforms to give big

emerging markets greater say at the World Bank and the

IMF. America has lobbied allies to steer clear of China’s

new infrastructure bank. It would be more sensible for the

Obama administration to try to integrate China into the ex-

isting institutions than to try to thwart its ambitions alto-

gether.

The great gall of China

As for its no-strings-attached policy, the country to which

China’s reckless lending poses the greatest danger is Chi-

na itself. It has cultivated an image as a champion of the

developing world. Financial distress in countries that re-

ceive its largesse undermines that. It is also a waste of

national treasure. The original point of getting into develop-

ment finance was to make better use of its currency re-

serves, not to fritter them away in corrupt nations. The sav-

ing grace for China is that its errors are already evident. It

has time to fix things before truly becoming a banker to the

world. Hewing closer to the model of the Bretton Woods

institutions is the right place to start.ᴥ

9

9


Renminbi Joins Top Five Most-Used Currencies Continued from pg. 6

“As the Chinese government focuses on interest rate and ex-

change rate reform, the momentum in adopting the renminbi for

cross-border business is only going to grow,” adds Mr Goldstein.

The government’s project to globalise the renminbi could move up

another gear later this year. In June, index complier MSCI will de-

cide whether it will include Chinese equities in its emerging mar-

kets benchmark, potentially drawing in billions of dollars of new

investment.

At the end of this year, the IMF will carry out a review of its Spe-

cial Drawing Rights system, which could lead to the renminbi be-

ing declared an official reserve currency.ᴥ

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