How the Yen-Yuan Agreement Benefits the United States
How the Yen-Yuan Agreement Benefits the United States
by Jason Jenkins, Investment U Research
Thursday, January 12, 2012
What you may have missed during the last week of 2011 was the announcement of a currency pact between Tokyo and Beijing. Here’s your briefing of what went down…
During a visit to China by Japanese Prime Minister Yoshihiko Noda, China and Japan announced a series of deals that promote the use of the yuan in trade and investment between the world’s second- and third-largest economies.
On December 26, 2011, it was officially announced that Japan and China will promote direct trading of the yen and yuan without at first using dollars and will encourage the development of a market for companies involved in the exchanges.
What this means is that the two countries agreed to promote direct yuan-yen trade, rather than converting their currencies first to dollars, and also for Japan to hold yuan in its foreign-exchange reserves, which are now largely denominated in dollars.
This will limit some of the power of the dollar in Asia.
Not Just Japan
China also announced an $11-billion currency swap agreement with Thailand earlier in December as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asian Nations (ASEAN) and establish free trade zones.
ASEAN is a geo-political and economic organization of ten countries located in Southeast Asia which aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of regional peace and stability.
Their top six economies are: Indonesia, Thailand, Malaysia, Singapore, Philippines and Vietnam.
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