Stay Ahead of This (Massive) Currency Shift

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China's political and economic presence surges daily. Lockstep with that surge is the growing significance of its currency.

Along with China's emergence as the world's second-largest economy, its yuan recently displaced the euro and became the second-most used currency for international trade.

Chinese leaders are intent on internationalizing their currency by growing its acceptance, perhaps even challenging the U.S. dollar as the new reserve currency, a trend I've highlighted here before.

To reach that goal, new yuan trading centers are being established.

But the location of the next major trading hub is almost certainly not where you'd expect.

And the implications will redefine the power centers of global commerce…

North America's Newest Currency

China's central bank has pledged the yuan would become "basically convertible" by 2015. So as the currency "frees up," potential settlement centers are eyeing profits from converting currencies into and out of the yuan.

In an effort to gain first-mover advantage, major cities are rushing to become the next trading hub.

Right now, no city in the Americas has yet to emerge as an important settlement center.

But two major Canadian cities are jockeying for just such a coveted position.

According to a recent article in The Globe and Mail, "Leaders in banking, government and economic development in Toronto and Vancouver are pushing to make their cities hubs for settlement of the Renminbi [or RMB, also known as the yuan] in hopes of establishing a centre for trade in the currency."

High-level talks between the financial services industry and the department of finance have been ongoing for months, but efforts have recently been stepped up.

Neil Tait, who was a banking executive in China and is currently vice-chair of the Canada China Business Council, believes there will be a huge "first mover advantage" as there is still no such center in the Americas.

Why would Toronto's Bay Street win out over say, New York's Wall Street?

A lot of reasons. Some obvious, some perhaps more subtle.

New York and Toronto may share the same time zone, but the United States is clearly a much bigger trading partner for China.

Still, Canada's relationship with China is a less complex one, in both politics and business.

Thanks to its natural resources, Canada's a coveted supplier of many of the raw materials and energy that China needs… badly.

Last year China National Offshore Oil Corp. (CNOOC) acquired Nexen Inc. of Calgary. It was the largest purchase ever in a market economy. And since then, no other country has received more Chinese investment than Canada.

By contrast, CNOOC's 2005 bid for U.S.-based UNOCAL failed, while striking a nerve over the politically sensitive energy sector. China's done oil and gas deals with the U.S. since then, but none has come close to the size of the Nexen deal. In the past six years, China spent about $30 billion on Canadian oil and natural gas assets alone.

At 900 million barrels of oil annually, Canada is by far the largest oil exporter to the United States. But success with the fracking boom has the United States becoming increasingly oil and gas self-sufficient.

Though I expect the Keystone XL pipeline will eventually be approved, it's still not a slam dunk. And energy is a big part of Canada's economy. So Canadian leaders have been giving serious consideration to other potential customers.

Prime Minister Stephen Harper has stated that it's a priority for Canada to grow its exports of energy towards Asia, all the while reducing its reliance on the United States as a market.

But it's not just about Keystone.

Join the conversation. Click here to jump to comments…

About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. Jeff P. from Canada | February 25, 2014

    I believe that both Toronto and Vancouver will have these centers. I believe that the USA is deliberately holding up the Keystone XL pipeline approval because the U.S. wants Canada's oil for itself, and at a cheaper price. Because of the backlog of oil coming out of Canada, the U.S. is getting Canada's oil at a huge discount. Canada realizes this and is using rail to transport its oil. There are two other pipelines in the mix right now, that are not yet totally approved, but are being constructed anyway because approvals are expected. When those pipelines are fully functional, don't be surprised when Canada spurns the USA as an oil customer. We have long memories here and when we are treated poorly, as with the delay of the Keystone XL, you can expect that there will be a serious trading consequence for the U.S. The shale oil might be a big boom right now, but Canada has been using its own shale oil for decades, and we know that it does not last as long as conventional oil or oil from the oilsands.

    • Robert in Vancouver | February 25, 2014

      I hope we can reduce our reliance on the US for trade and investment because the US has been trying it's best to ruin what used to be a great relationship.

      Over the past few years the US Government has become hostile against us, and even encouraging American special interest groups to be anti-Canadian. This makes me sad, but it's beyond Canada's control.

      It doesn't look like that's going to change, it's just getting worse. So we have to look out for ourselves and our future.

      If China wants to replace the US and be our good friend and ally, that's perfectly OK with me.

  2. Francesco | February 25, 2014

    Hi Peter, I have with interest your two reports about the Yuan getting ready to become an alternative, if not a substitute to the US $. I am following the Forex on a regular basis, especially in connection with the Iraqi Dinar.
    I understand that a world wide currency reset is in the works which will enable other currencies as well, such as the BRIC's countries to be traded internationally. Is the Global Currency Reset just a rumor? Is the Iraqi Dinar about to return to its original value of over $ 3.00 as it was back in the 80's?
    Thanks for any info you can provide
    Francesco

    • Peter Krauth | February 25, 2014

      Francesco, thanks for your thoughtful question. In my opinion, it’s impossible to know for sure when a global currency reset will happen, but I do believe it will come. First and foremost, I expect that gold will have a role to play in this reset. Perhaps a currency other than the U.S. dollar will dominate, or perhaps a basket of leading currencies will be used to price commodities. In either case, I think the chances are good that such a currency will have at least a partial gold backing. In fact, I think that backing will come first, and that is what will help propel that currency to become more influential – and perhaps even dominant.

      As far as the Iraqi Dinar, it’s not one that I follow. But given that Iraq will likely become an increasingly important oil producer, I can imagine that its currency will gain in strength.

      Thanks for your interest.

      Peter Krauth
      Editor, Real Asset Returns

    • Shaun | February 26, 2014

      I believe this will happen .The Global currency reset1
      I also believe the dinar will return to its original value of just over 3.00.
      in reply to Francesco comment.

  3. yngso | February 25, 2014

    2016 isn´t so far away. If the Reps can get Christie in… I suppose Canada wouldn´t mind to have the biggest customer possible, the USA?

  4. Scott Felthousen | February 27, 2014

    So at this time there is NO stock or suggestions on how to invest into the YUAN ?

    or did I miss it ?

    Thanks,

    Scott

    • Peter Krauth | February 27, 2014

      Hi Scott. Yuan investment options are limited at best.
      One of the most interesting is the Wisdom Tree Chinese Yuan Strategy ETF (NYSE:CYB).

      According to Wisdom Tree:
      “WisdomTree Chinese Yuan Strategy Fund seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar.
      Although this Fund invests in very short-term, investment grade instruments, the Fund is not a "money market" Fund and it is not the objective of the Fund to maintain a constant share price.”

      This ETF’s recent volume is about 50,000 units daily which is not bad.
      But it’s not only a straight line up. If you look at its performance since inception, you’ll note that
      It only started to climb markedly in the past year or so. In the last few days, CYB has seen a considerable drop.
      I believe that’s likely a combination of emerging market fears (caused at least in part by QE tapering), and
      Perhaps Chinese leaders wanting a slightly weaker currency to help exports. Could be a buying opportunity.

      Peter Krauth

  5. Jean Marie Tshilumba | February 27, 2014

    IT IS OBVIOUS THAT THE U.S. IS A MAJOR CHALLENGER IN THE COMPETITION OF SNATCHING THE ILLUSTROUS HUB SETTLEMENT .
    WE ARE NOT AWARE OF WHICHEVER STRATEGIES THEY ARE BUSY 'MIJOTING' IN 'COULISSE'. HOWEVER TAKING IN CONSIDERATION SEVERAL FACTORS , WE ARE RELATIVELY LEADING IN MAKING OUR TWO MEGA-CITIES THE POTENTIAL WALL STREET TAKE-OVER .

  6. Mason Karimi | March 2, 2014

    you ignore something about China. if every Chinese want to eat food only more 1 sandwich a day, it will be over a billions of Sandwiches! now, Chinese level of welfare is very low. you cannot never compare with any western countries.
    i think it will be to many problems with people of china.
    the situation can not remain same!

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