Tweet
Interesting article because you have all the expected players sticking in their own 2 cents...
http://www.sfgate.com/business/botto...#ixzz2LAv4a5fe
http://www.sfgate.com/business/botto...#ixzz2LAv4a5fe
For all its charms and concentrated wealth, San Francisco is not known as a world financial center like New York, Hong Kong or London.
That may change if it succeeds in a drive to become the West Coast hub for business transactions conducted in Chinese currency.
I'm told the city is working on a proposal to become a center for offshore trading in Chinese yuan, allowing the currency to be used more widely beyond China's borders.
Mayor Ed Lee's office could not be reached for comment before press time Friday, but city officials are said to have lined up a "who's who in the San Francisco financial industry" to assist in the proposal.
Should the idea bear fruit, San Francisco would join Hong Kong, London and Singapore as places where offshore trading in yuan (a.k.a. renminbi or RMB) is growing, as China slowly moves to open up its financial system.
"It makes sense for an offshore center to be in a place like the San Francisco area that does a lot of trade-related business with China," said UC Berkeley economist Barry Eichengreen, author of "Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System."
It also makes sense for the Chinese government, which would like to lessen the influence of U.S. dollars, the primary mechanism of international trade, and increase the influence of the yuan. At the same time, Chinese and U.S. companies doing business with one another can save costs incurred by going through the process of currency exchange and conversion, and will have more "redbacks" on hand to invest in China.
"It can be a win-win," Eichengreen said.
Local banks authorized to process accounts receivable in Chinese currency are an essential go-between for offshore trading. Wells Fargo, which began accepting deposits and providing loans in yuan at its Shanghai branch late last year, would seem to be a good candidate.
Other banks mentioned in connection with the initiative include Silicon Valley Bank,which entered into a joint venture with Shanghai Pudong Development Bank last year; EastWest Bank, a Chinese American bank in Los Angeles with branches throughout California and China; and Bank of Communications, China's fifth-largest bank, which opened its West Coast flagship in San Francisco in 2011.
If the city were to become an offshore hub, it probably won't happen anytime soon. Some people close to City Hall have quietly pursued the idea for more than a year, and it has a number of hoops to jump through, including go-aheads from the U.S. Federal Reserve and the Chinese government.
Closing deals with Chinese entities takes time - witness the months it's taking to get San Francisco and China Development Bank to sign, seal and deliver the state-owned bank's $1.7 billion financing of the Hunters Point/Treasure Island project.
And not everyone is enthused at the offshore yuan idea. "Most of the capital flowing out of China is government owned or controlled. That's the thumb China puts on the scale, until it's dissuaded or prevented from manipulating its currency," said Robert Scott, director of trade and manufacturing policy at the Economic Policy Institute in Washington.
"Frankly, I'd much rather see San Francisco investing its energies in things inside the United States, like jobs and research and development."
Ronald McKinnon, an international economist at Stanford University, doubts offshore yuan trading will do much to enhance China's standing in the international banking system.
"In the end, (the yuan) cannot be a principal international currency as long as it maintains capital controls and additional limits on internal interest rates," said McKinnon, author, most recently, of the "The Unloved Dollar Standard: From Bretton Woods to the Rise of China."
That may change if it succeeds in a drive to become the West Coast hub for business transactions conducted in Chinese currency.
I'm told the city is working on a proposal to become a center for offshore trading in Chinese yuan, allowing the currency to be used more widely beyond China's borders.
Mayor Ed Lee's office could not be reached for comment before press time Friday, but city officials are said to have lined up a "who's who in the San Francisco financial industry" to assist in the proposal.
Should the idea bear fruit, San Francisco would join Hong Kong, London and Singapore as places where offshore trading in yuan (a.k.a. renminbi or RMB) is growing, as China slowly moves to open up its financial system.
"It makes sense for an offshore center to be in a place like the San Francisco area that does a lot of trade-related business with China," said UC Berkeley economist Barry Eichengreen, author of "Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System."
It also makes sense for the Chinese government, which would like to lessen the influence of U.S. dollars, the primary mechanism of international trade, and increase the influence of the yuan. At the same time, Chinese and U.S. companies doing business with one another can save costs incurred by going through the process of currency exchange and conversion, and will have more "redbacks" on hand to invest in China.
"It can be a win-win," Eichengreen said.
Local banks authorized to process accounts receivable in Chinese currency are an essential go-between for offshore trading. Wells Fargo, which began accepting deposits and providing loans in yuan at its Shanghai branch late last year, would seem to be a good candidate.
Other banks mentioned in connection with the initiative include Silicon Valley Bank,which entered into a joint venture with Shanghai Pudong Development Bank last year; EastWest Bank, a Chinese American bank in Los Angeles with branches throughout California and China; and Bank of Communications, China's fifth-largest bank, which opened its West Coast flagship in San Francisco in 2011.
If the city were to become an offshore hub, it probably won't happen anytime soon. Some people close to City Hall have quietly pursued the idea for more than a year, and it has a number of hoops to jump through, including go-aheads from the U.S. Federal Reserve and the Chinese government.
Closing deals with Chinese entities takes time - witness the months it's taking to get San Francisco and China Development Bank to sign, seal and deliver the state-owned bank's $1.7 billion financing of the Hunters Point/Treasure Island project.
And not everyone is enthused at the offshore yuan idea. "Most of the capital flowing out of China is government owned or controlled. That's the thumb China puts on the scale, until it's dissuaded or prevented from manipulating its currency," said Robert Scott, director of trade and manufacturing policy at the Economic Policy Institute in Washington.
"Frankly, I'd much rather see San Francisco investing its energies in things inside the United States, like jobs and research and development."
Ronald McKinnon, an international economist at Stanford University, doubts offshore yuan trading will do much to enhance China's standing in the international banking system.
"In the end, (the yuan) cannot be a principal international currency as long as it maintains capital controls and additional limits on internal interest rates," said McKinnon, author, most recently, of the "The Unloved Dollar Standard: From Bretton Woods to the Rise of China."
Comment