The world does not like the Renminbi – Commerzbank

It seems like an eternity has passed since Chinese politics set out to make the Renminbi a global trade currency. Commerzbank economists explain why the RMB is set to depreciate against the US dollar.

Remnants of past policies hurt the Renminbi

With a 2.7% share of cross-border SWIFT capital transactions, the Renminbi does not have a significant international role. And this despite the fact that no other economy does as much foreign trade as China. We have to conclude: the world does not like the Renminbi.

There are still some remnants of past efforts. For example, the swap lines that China had signed with other countries. If the Renminbi had become a global currency and if loans had been denominated in RMB in third countries, these swap lines could have prevented a dramatic collapse of these markets in times of crisis. None of that happened.

Now these swap lines are diverted for another use. In Argentina, for example, to provide the government with a loan that only has to be guaranteed with Argentine Pesos with no international value. However, this is not positive for the CNY.

The Argentine government will not be able to do much with the Yuans it has received in this operation. You need a currency with which to pay for urgent imports: the Dollar. Therefore, the entire agreement will mainly result in one thing: it will cause the Renminbi to depreciate against the US Dollar.