Skip to comments.Ruble move reflects China's yuan strategy
Posted on 01/28/2014 12:03:50 AM PST by cunning_fish
Policymakers have shown their confidence in the currency
Allowing foreign currencies to be freely traded with the home currency is common in many countries. But giving a foreign currency the same status as the home unit is not, and China has acted differently.
On Dec 8, the country announced that it was allowing the Russian ruble to circulate unrestricted in Suifenhe, Heilongjiang province, bordering Russia. Although the rule applies to only one city, it is the first time that Beijing has given a foreign currency the same legal status as the renminbi on Chinese territory.
This deregulation tells a few things.
First, Chinese policymakers are indeed increasingly embracing market forces.
Generally the government remains prudent in liberalizing the foreign exchange system and insists on setting what it believes the right value for the yuan.
But Suifenhe, as a place where the yuan and the ruble have already been traded freely by residents, travelers and businesses, has proven that the market itself can do a good job in finding the right point between two currencies.
For years, underground dealers in the city have brokered deals on their own. Their exchange rates could at times differ widely from official rates. But their rates appeared to reflect the market better, with official rates having taken gray-market rates as a reference over the years. Now the differences between market rates and official rates are small, which shows the power of the market.
On the demand side, the ruble has virtually become the second currency in the city, where one-tenth of the China-Russia trade is taking place.
(Excerpt) Read more at chinadaily.com.cn ...
This is significant.
You can buy noodles with rubles.
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