Courtesy of Mish.
I remain in “negative awe” of China bulls who think the yuan is going to soon replace the US dollar as the world’s reserve currency.
As I have pointed out before – China’s bond market is nowhere big or liquid enough; China’s property bubble is the world’s biggest; China’s shadow banking system is on the verge of implosion, and Chinese growth is imploding.
Readers know full well that I am not prone to US flag-waving.
That said, the US has the most open, most free capital markets of any major country. In contrast, China has capital controls reminiscent of two-bit South-American countries (amongst numerous other significant problems).
Monetary Smuggling
Reuters reports How China’s Official Bank Card is Used to Smuggle Money.
Growing numbers of Chinese are using the country’s state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.
This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.
In a warren of gritty streets around Macau’s ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases – a way of evading China’s strict currency-export controls.
On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a “general sale”, stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.
The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200 (1,925.62 pounds) (1,925.51 pounds), in cash that individual Chinese can legally move out of the mainland. “Don’t worry,” said a store clerk when asked about the legality of the transaction. “Everyone does this.”
Yuan to Replace US Dollar as Reserve Currency?
…
