RMB and Euro Exchange Rate
Now, with the US Dollar on the brink of a free-fall, attention are now shifted towards the Chinese RBM and the Euro as the next safe haven. Currently, 1 Euro trades at 9.2433 Chinese Yuan (RMN) or 1 RMB equates to 0.10818 Euro.
The Chinese RMB is especially tricky to trade due to the capital restrictions by the Chinese Central Bank (CCB) on forex controls. In addition, the Chinese RMB is generally pegged to the US Dollar – this possible with the estimated 1.1 trillion of US Dollar held as part of Chinese reserves. Thus, it would be prudent for most exchange rate traders to wait out on the outcome of US Congress – if the US debt ceiling can be raised beyond the current 14.3 trillion dollar limit.
Now, all eyes are aimed for the showdown talk between the US Congress and the US Senate, and the negotiations between the Republicans and the Democrats with both sides hoping for a deal which would appease votes. Major investment banks and hedge funds are drawing up their respective plan B should any deal fall through and the US Dollar and Treasury bonds are no longer a safe haven for parking aside liquid investments.
There has already been talk amongst forex traders that the Chinese Government is planning to peg the RMB against the Euro directly rather than against the US Dollar, this in the view that the Euro is pegged against member nations in the Eurozone and is not easily manipulated – while the US Dollar is simply depreciated whenever the US government wants to reduce the effective debt of the US government and allows more borrowings. Should such a peg exist, this will take the Chinese RMB above the 0.12 Euro levels.
Should that happen, a freefall of the US Dollar will send stock markets plunging and cast a serious doubt if the US economy could ever recover. The lost of the trust on the greenback will certainly make Americans cringe and certainly, a deal better come as soon as possible.
