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Direct yen-yuan trading helps expand China-Japan trade (2)

By Ye Xiaonan (People's Daily Overseas Edition)

08:06, June 01, 2012

Sun added, “Side effects associated with speculation demand are relatively small, so an experiment like this will be more secure.”

Given the fact that trade and investment between China and Japan take up more portion in the real economy, he said that the direct exchange between the yuan and yen will act as a lubricant for the real economy.

The Chief Economist of Bank of Communications Lian Ping said the direct exchange is a good thing, on the ground that the intermediate of the U.S. dollar in the exchange between the yuan and yen results in massive exposure to influence from the U.S. dollar. But in the case of direct exchange, the impact of the U.S. dollar will be mitigated and the exchange will take place in a manner that is based on the demands and can better reflect the demand and supply between the two countries. Moreover, given the status of Japan as China’s large trade partner, direct exchange will favor the two countries’ import and export trade.

According to the famous financial commentator Ye Tan, while saving the two countries considerable transaction costs, free convertibility offers the greater benefit to promote the trade between China and Japan.

Caution should be paid in the yuan globalization

Insiders have warned of many risks and trials facing yuan globalization. First, the yuan’s ascendance in the world market will definitely receive a strategic squeeze from the U.S. dollar, and the yuan will be forced to appreciate rapidly. Then, although the role of the yuan can be improved by cooperating with yen by using its influence, the absence of a strategy of keeping the initiative in our own hands will expose us to risk. Thus, caution should be paid in yuan globalization.

Ye said that the size of the free convertibility between the yuan and yen should be subject to certain limits, that is, as a convertible currency, yen will lead to indirect convertibility of the yuan. And it is hard to control this prediction at this stage of yuan globalization. Thus, it is cautious to introduce the convertibility in a progressive and controllable manner.

Read the Chinese version at: 人民币与日元有望直接兑换

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