China's currency is poised for a bigger role on the global stage as its economy continues to grow at breakneck pace.
More global businesses, including those in the UAE, are settling their debts in the yuan and offshore investors are sinking funds into the currency. But analysts say the redback still has a long way to go before it can knock the greenback off its perch as the first-choice global currency. Excessive red tape is one of the key problems.
So what is the outlook for the yuan? The National looks at the currency's future and how it may affect the Gulf.
How soon will the yuan become an international currency to compete with the US dollar?
China may have emerged as the world's second-biggest economy in recent years but so far its currency's global status has not reflected the nation's surging dominance. Slowly but surely, however, use of the yuan is increasing in a trend likely to lead to a radical altering of the global monetary system.
China has taken major steps to promote the yuan as a trade and investment currency. But for the yuan to compete with heavyweights such as the dollar and the euro, policymakers have to transform it into a reserve currency for central banks as well as retail investors.
For that to happen, restrictions over its convertibility need to be lifted, say economists. In effect that means making it easier to exchange the yuan into gold or other currencies.
"At the very least it could take five years for the yuan to become fully convertible," says Mark McFarland, an emerging markets economist at Emirates NBD. "A lot depends on the openness of the financial markets in China and the willingness of the international financial community to trade in the currency."
China's bid to turn the yuan into an international currency is helped by the problems with the US dollar. The current global reserve currency has lost its sparkle since the economic financial crisis, and ballooning deficits in the US.
Economists point out investor concerns about the US reaching its sovereign debt ceiling and uncertainty about the end of the country's financial stimulus measures have accelerated the dollar's longer-term slide.
Many are predicting the end of the dollar's dominance in the coming years. By 2025, the most likely scenario for the international monetary system is a multi-currency framework centred on the dollar, the euro and the yuan, a World Bank report released last week predicted.
So what is what holding back the yuan from becoming a global currency?
Businesses, governments or individuals wanting to exchange dollars into euros or yen into Swiss francs are able to do so freely. In contrast, trading and investing with the yuan can be more troublesome.
"Restrictions on currency convertibility are one avenue in which the attractiveness of the [yuan] as an international currency is constrained," Justin Yifu Lin, the chief economist at the World Bank, wrote in a report released last week.
At the moment, the yuan can be converted into other currencies for payments of goods and services but capital inflows and outflows are subject to tough restrictions. Yuan held by foreigners or by Chinese residents can be exchanged but up to a limit of US$200,000 (Dh734,610). Anything above that amount and the sort of red tape holding back the currency from becoming fully convertible becomes a problem. A stumbling block for investors or businesses wanting to buy the currency is that restrictions mean they cannot freely acquire Chinese assets in exchange for their own currency. Foreign firms often have to ask their Chinese trading partner to open a yuan account for them in China with which to pay for goods or services. This then has to be approved by China's financial authorities.
What factors have been driving the yuan?
With China forecast to overtake the US as the world's biggest economy within the next few decades, more investors are keen to share in the success of the Asian powerhouse. That means holding yuan assets.
China's currency has already climbed almost 5 per cent since it was de-pegged from the dollar in June last year. The government is under pressure from the US to loosen controls to allow the appreciation to speed up.
China has made progress towards achieving its goal of boosting the yuan's use in global trade. Shifts in the pattern of trade from developed to emerging markets have benefited China as more nations move from trading in dollars to the yuan. By 2015, international business worth about $2 trillion - more than half of China's trade - will be settled in the yuan, HSBC forecasts.
Regional traders are playing their part in the growing use of the yuan. According to HSBC's latest Trade Confidence Index, as much as 13 per cent of traders from the region said they would use the yuan to settle deals in the next six months.
"Foreign exporters will gain a margin in the [yuan] at no additional transaction cost," says Donna Kwok, a China economist at HSBC. Signs are emerging of regional importers using the currency, too, as they come under pressure from Chinese manufacturers to pay for goods in the currency. Paying for goods in the yuan now can allow traders to hedge against the risk of future exchange rate fluctuations.
Moves to start positioning the yuan as an investment currency have also been successful. That process began in July last year with the creation of an offshore inter-bank market for the yuan in Hong Kong. It allowed foreign investors to issue so-called dim sum bonds, investment vehicles priced in offshore yuan.
What are the chances of the GCC swapping its currency pegs from the US dollar to the yuan?
With oil still priced in US dollars any move to abandon GCC pegs to the greenback in favour of the yuan is unlikely, say analysts. Before that could happen the yuan would have to be established as a reserve currency. A more likely scenario could be a gradual move towards a currency basket, heavily weighted in dollars but also including the yuan and other important currencies such as the euro.
"As China becomes a more important trading partner with the GCC, the currency's role will increase," says Mahmood al Aradi, the senior executive vice president of financial markets at National Bank of Abu Dhabi. China is expected to become the GCC's most important economic partner by 2020, according to the findings of an Economist Intelligence Unit report published this month. Oil consumption in Asia is predicted to grow by 4.4 per cent in the next five years, while demand for the commodity from US and other western economies was expected to plateau, the report revealed.
tarnold@thenational.ae
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
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How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
- Avoid suspicious social media ads promoting fraudulent schemes.
- Only invest in crypto projects that you fully understand.
- Critically assess whether a project’s promises or returns seem too good to be true.
- Only use reputable platforms that have a track record of strong regulatory compliance.
- Store funds in hardware wallets as opposed to online exchanges.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
Company%20profile
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MATCH INFO
Uefa Champions League semi-final, first leg
Barcelona v Liverpool, Wednesday, 11pm (UAE).
Second leg
Liverpool v Barcelona, Tuesday, May 7, 11pm
Games on BeIN Sports
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
if you go
Getting there
Etihad (Etihad.com), Emirates (emirates.com) and Air France (www.airfrance.com) fly to Paris’ Charles de Gaulle Airport, from Abu Dhabi and Dubai respectively. Return flights cost from around Dh3,785. It takes about 40 minutes to get from Paris to Compiègne by train, with return tickets costing €19. The Glade of the Armistice is 6.6km east of the railway station.
Staying there
On a handsome, tree-lined street near the Chateau’s park, La Parenthèse du Rond Royal (laparenthesedurondroyal.com) offers spacious b&b accommodation with thoughtful design touches. Lots of natural woods, old fashioned travelling trunks as decoration and multi-nozzle showers are part of the look, while there are free bikes for those who want to cycle to the glade. Prices start at €120 a night.
More information: musee-armistice-14-18.fr ; compiegne-tourisme.fr; uk.france.fr
Match info
Karnataka Tuskers 110-3
J Charles 35, M Pretorius 1-19, Z Khan 0-16
Deccan Gladiators 111-5 in 8.3 overs
K Pollard 45*, S Zadran 2-18
Profile
Company: Justmop.com
Date started: December 2015
Founders: Kerem Kuyucu and Cagatay Ozcan
Sector: Technology and home services
Based: Jumeirah Lake Towers, Dubai
Size: 55 employees and 100,000 cleaning requests a month
Funding: The company’s investors include Collective Spark, Faith Capital Holding, Oak Capital, VentureFriends, and 500 Startups.
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England's all-time record goalscorers:
Wayne Rooney 53
Bobby Charlton 49
Gary Lineker 48
Jimmy Greaves 44
Michael Owen 40
Tom Finney 30
Nat Lofthouse 30
Alan Shearer 30
Viv Woodward 29
Frank Lampard 29
'Midnights'
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COMPANY%20PROFILE
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Abu Dhabi Desert Challenge – Rally schedule:
Saturday: Super Special Spectator Stage – Yas Marina Circuit – start 3.30pm.
Sunday: Yas Marina Circuit Stage 1 (276.01km)
Monday: Nissan Stage 2 (287.92km)
Tuesday: Al Ain Water Stage 3 (281.38km)
Wednesday: ADNOC Stage 4 (244.49km)
Thursday: Abu Dhabi Aviation Stage 5 (218.57km) Finish: Yas Marina Circuit – 4.30pm.
Who is Mohammed Al Halbousi?
The new speaker of Iraq’s parliament Mohammed Al Halbousi is the youngest person ever to serve in the role.
The 37-year-old was born in Al Garmah in Anbar and studied civil engineering in Baghdad before going into business. His development company Al Hadeed undertook reconstruction contracts rebuilding parts of Fallujah’s infrastructure.
He entered parliament in 2014 and served as a member of the human rights and finance committees until 2017. In August last year he was appointed governor of Anbar, a role in which he has struggled to secure funding to provide services in the war-damaged province and to secure the withdrawal of Shia militias. He relinquished the post when he was sworn in as a member of parliament on September 3.
He is a member of the Al Hal Sunni-based political party and the Sunni-led Coalition of Iraqi Forces, which is Iraq’s largest Sunni alliance with 37 seats from the May 12 election.
He maintains good relations with former Prime Minister Nouri Al Maliki’s State of Law Coaliton, Hadi Al Amiri’s Badr Organisation and Iranian officials.
Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
The%20specs%20
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded