" . . . Would-be US leaders would do well to note that for probably the first time since the second world war the dollar bloc in east Asia has been displaced. In its wake a currency bloc based on China’s renminbi is emerging. . . ."

http://www.ft.com/cms/s/5a34c410-19d6-11e2-a379-00144feabdc0.html

October 21, 2012 8:26 pm

China’s currency rises in the US backyard

By Arvind Subramanian and Martin Kessler

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China Business Intelligence Comment:  For over a year, China has been internationalizing the RMB in a careful and methodical way. The latest news, from the Wall Street Journal (see link below), is the pressure the Hongkong Monetary Authority is under to deal with heavy capital inflows by weakening the HK$ which is at the top of its HK$7.8-US$1.00 trading peg. Clearly, the peg - established in the 1983 panic sparked by the announcement that the U.K. would retrocede HK to China in 1997 - outlived its usefulness several years ago . . . and there are reasons for Beijing (and the HKMA) to start to move the HK$ toward parity with the RMB. It wouldn't be an "economic" decision, but rather a political, legitimacy, sovereignty, and prestige decision - the type that "Western District" may find increasingly attractive in Beijing's coming leadership shuffle as the CCP seeks to establish its international preeminence as the globe's top trading nation. Otherwise, why the PBOC push to entice trading partners into RMB settlement? It might also suggest that Beijing is looking for ways to undermine the prestige of the US$ should a geopolitical showdown over Japan or the SChina Sea start to get ugly. ------------ I recall that we've had this discussion before, but what's to prevent the HKMA from pegging to the RMB Yuan as a surrogate, and the Yuan becoming a "convertible currency" via the HK$? I mean, the HK$ becomes the international currency, backed by the yuan on a one-to-one parity basis? Perhaps HKMA simply revalues the HK$ upwards to Yuan parity, and peg the HK$ to whatever the PBOC says the Yuan is worth in US$ terms. nothing up my sleeves, and presto! "international-currency-without-convertibility." (well, seems quite do-able to me.) jjt Updated October 21, 2012, 9:46 a.m. ET Hong Kong Takes Action to Weaken Its Dollar http://online.wsj.com/article/SB1000142405297020340640457807003361547426... The Wall Street Journal October 22, 2012 Hong Kong Takes Action to Weaken Its Dollar By Fiona Law