Posted on 05/27/2012 6:58:36 PM PDT by DeaconBenjamin
Yen-yuan direct trading to start in June Exchange rates between yen and yuan will be determined by their transactions, departing from "cross rate" system
Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports.
With the planned step, exchange rates between the yen and the yuan will be determined by their transactions, departing from the current “cross rate” system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday.
The two governments are eyeing setting up markets in Tokyo and Shanghai, the Yomiuri Shimbun said.
The yen-yuan exchange system would help businesses in the world’s second- and third-largest economies reduce risks associated with exchange rate fluctuations in the dollar and cut transaction costs, Kyodo said.
It will be the first time that China has allowed a major currency except the dollar to directly trade with the yuan, Kyodo said.
By giving China a place to put its money - and one much closer to home - they’ll have less reason to stop propping up our budget by lending us money. That will cause our interest rates to rise.
It would also be funny if China takes over Japan financially just these few decades after Japan conquered them militarily.
It is a positive step to let the Yuan trade more freely instead of the rigid dollar peg.
The Chinese don't understand the idea of free exchange rates. If they peg to the yen at a different rate from the dollar, they must unpeg the dollar. Otherwise, traders will just shift to the currency with the best rate, and I don't think the Japanese are dumb enough to allow their currency to be manipulated that way.
There would be a lot of long-term benefits to that. One would be a dramatic decline in our trade deficits. At the moment, the dollars sent overseas for our imports are often more valuable to the receiving country to hold as reserves than they are for purchasing stuff in return from us.
There would certainly be short-term pain, too. But, hey that's coming anyway.
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