– New Zealand, China in Talks on Convertibility of Currencies (Wall Street Journal, May 26, 2013):
WELLINGTON, New Zealand—Seeking to help its exporters, New Zealand is negotiating with China to make their currencies directly convertible, a spokeswoman for Prime Minister John Key said.
Wellington’s push is aimed at driving down costs for companies that do business with China, which is close to overtaking Australia as New Zealand’s No. 1 trading partner.
Talks are in the “very early stages” and “progressing,” the spokeswoman said, adding that the issue had been brought up during Mr. Key’s visit to China last month.
Officials at the People’s Bank of China didn’t return calls seeking comment.
Direct convertibility between the Chinese yuan and New Zealand dollar would end the need for New Zealand’s companies and currency traders to convert New Zealand dollars or yuan into U.S. dollars when making or receiving payments.
New Zealand’s two-way trade with China totaled 15.3 billion New Zealand dollars (US$12.4 billion) in the year ended April 30, compared with NZ$16.8 billion with Australia, government data showed last week. Most of New Zealand’s exports to China are agricultural products—particularly milk powder, meat and wool—while most of its imports from there are computers, mobile phones and clothes.
Trade relations took a knock earlier this month when China temporarily blocked millions of dollars of New Zealand meat from entering the country, as it bolstered scrutiny of imports after a spate of mainly homegrown food-safety scandals.Beijing is undertaking a long, gradual campaign to establish the yuan as a more market-oriented, international currency. China’s State Council, or cabinet, said in a statement this month that the country would draft a plan to allow the yuan to become fully convertible. Meanwhile, the People’s Bank of China is guiding the currency higher and set the median point of its permitted daily trading band last week at the strongest level ever.
China and Australia reached a deal to allow direct convertibility between the yuan and Australian dollar last month; before that, only the U.S. dollar and Japanese yen were directly exchangeable with the yuan. As China has become more industrialized, it has become Australia’s biggest trading partner and buyer of its commodities, including raw materials such as copper and iron ore.
For New Zealand, “There is no time frame for concluding an agreement,” Mr. Key’s spokeswoman said. “We are aware it took Australia around 12 months to achieve its recent agreement with China.”
China topped Australia as New Zealand’s biggest trading partner from February through April this year, recent monthly government data showed. Trade between the countries has been growing ever since they reached a bilateral free-trade agreement five years ago. That increased trade helped New Zealand, like Australia, weather the economic turmoil in Europe and the fragility of the U.S. recovery, which have weighed on global growth.
As well as lowering business costs, direct convertibility may pave the way for New Zealand’s central bank to diversify some of its foreign-exchange assets into Chinese government bonds. Last month, the Reserve Bank of Australia said it planned to invest up to 5% of its foreign-currency assets—close to two billion Australian dollars (US$1.9 billion)—in Chinese government bonds.
The Reserve Bank of New Zealand declined to comment.
This is another huge chip into the hold the US dollar used to have over the world economy. In 2010, all international trades were completed using the US dollar, the world reserve currency. A couple of nations has tried in the past to break the US hold on the world economy by urging the world markets to revert to gold, instead of the dollar, especially the way the FED was abusing it’s powers by nonstop printing of dollars. They were Libya and Iraq……and look at what happened to them.
Hugo Chavez said nothing. He put together a small coalition of nations, 12, including Cuba, and introduced the first electronic currency, the Sucre, for member nations to use when trading with each other. Their entire market was slightly over half a billion a year. The Sucre allowed member nations to trade with each other using their own currencies without need of converting to the dollar. The Sucre translated the value of each little country’s currency, and the idea of a world reserve currency was rendered obsolete. It was so small, it flew under the radar.
In November of 2010, China and Russia quickly followed suit, setting up their trade agreements with each other using their own currencies, leaving the dollar out. China went on and recruited Turkey, India, Japan, and many small African nations. They also connected with other South American nations.
The US dollar went from being involved in all international trades to about 60% within two years. This story is huge, and you won’t see it in mainstream media. I do not yet know how big a chip this will be, but the players are quite large, emerging economies instead of gutted relics like ours.
This is another very powerful signal of the decline of the US dollar and economy for all time. I have been watching this since the advent of the Sucre in Summer of 2010……but the story has been buried by most international media.
Thank you for covering this, it is a very important story.