Renminbi 2013-16

My interest in the Renminbi was heightened when I conducted my analysis back in 2008, when I noticed the links between the US$ and the Chinese currency. We are now slowly approaching a time when any fix between them will be at least partially eliminated.

 2013

The year has obviously started with a lot of enthusiasm for the Renminbi. There is a very dramatic and favourable change happening in the attitudes to the currency. At the time of writing even the BOE is on the verge of signing an agreement, backed by swaps, allowing it to lend the currency.  This clearly represents a key turning point the international availability of the currency. China have also decided to pump some liquidity into the country to maintain growth

The momentum to move a greater amount of transactions into the currency will increase during March to June. There is likely to be the beginnings of discussions how to break the peg with the dollar. However, there will be some resistance both within China and externally which will slow down the speed of change over this period.

Around June, however, there is likely to be a leap forward in the process

So expect some exciting announcements around July and August, but still an element of caution in place. There is evidence that inflationary concerns might be to the fore by the end of this period.

 However progress is on a backburner in the last quarter as some difficult conditions prevent further developments. Thus it looks like China will pump a even more liquidity into the system around October and November, perhaps in response to events elsewhere.

 So the year ends with nothing much happening, but a huge wave of expectation for 2014

 2014

The first month is relatively calm but the issue of a more free floating Renminbi revives in February , although this is not a time for action

March and April, however are much more interesting. There is a great deal of pressure building up internally and externally and the currency has to begin to change its nature.

There are far less reservations by this time and significant progress can be made.

There is a bit of backtracking around july though. Changes are restricted to behind the scenes.

 The period from Sept to December is much more productive. Real changes occur and while it might be premature to expect a free float – it is fairly certain that there will be a commitment for the currency to trade relatively independently in place by the end of this year.

 2015

There are practicalities to be resolved however, and there will be short term restrictions in place in early 2015

There are some unexpected problems around march to May, which must be resolved and progress is not as fast as hoped.

As a result the period through June to Aug is relatively quiet.

The biggest changes therefore take place around September 2015

However, there are inevitably some difficulties which result. Initially there may be problems finding the fundamental value of the currency and there will not be a clear sense of direction of trading at all in the last few months of the year. There may even be an almost complete lack of movement in the exchange rates as the market awaits indicators.

2016

Early 2016 brings nothing particularly new.  The restrictions of December 2016 abate somewhat, although the background conditions continue. No noteworthy events happen before march though.

 By April, it seems that there will be more exchange with other currencies occurring. There is a likelihood that the currency is being well received now and that it is gaining strength and power.

 The general feeling of opportunity and openness is stronger by June

And July sees a significant increase is trading activity. The signs are nearly all positive at this point.

 There is some difficulty around September, however, when trade slips back a little and there is a fear that the currency maybe over- bought.

Nevertheless the over-arching mood is good.

 October is even better. Many of the worries about the currency will be dismissed and there is evidence that investors will see it as a worthwhile opportunity.

 There is likely to be significant speculative activity by November as a result. Although this does not appear to be a longer term trend and there is more economic support for the currency’s value than  might be assumed.  The year ends with a continued positive approach to the currency.