Latin America Ponders Role of the Renminbi

Latin America anticipates China’s rise as the world’s top economy, but is uncertain about the Chinese currency. During the last decade, trade between the two regions increased fivefold and Chinese direct investment into Latin America increased by twentyfold, reports Joe Leahy for the Financial Times. Many Latin American firms are unfamiliar with the renminbi, Leahy writes, adding “For Brazil’s big exporters the main benefit of using the renminbi would be to lower foreign exchange costs by removing the need to convert every transaction into dollars, as at present.” Commodities represent the bulk of the region’s exports and are priced in dollars. Agustín Carstens, candidate for managing director of the International Monetary Fund, points to the risks of investing reserves in a currency that’s not freely convertible. So opportunities for renminbi investments are limited, and currency traders already speculate on the renminbi appreciation. Leahy concludes, “For the moment in Latin America, the dollar remains king.” – YaleGlobal