At a time when the U.S. economy is struggling to recover, and there is concern of dollar devaluation, could the Bank of China be offering a new option? For the first time, U.S. citizens will be allowed to deposit U.S. dollars and hold them in Chinese Yuan within the United States.
On Jan. 12, 2011, The Wall Street Journal reported:
Despite personal political views, this could possibly be a hedge against dollar devaluation caused by the Federal Reserve's monetary easing. Most believe now the yuan is being kept artificially low to keep a favorable trade balance with the US. With China currently experiencing an inflationary economy, many believe this will force the value of the yuan higher.
China has launched trading in its currency in the U.S. for the first time, an explicit endorsement by Beijing of the fast-growing market in the yuan and a significant step in the country's plan to foster global trading in its currency. The state-controlled Bank of China Ltd. is allowing customers to trade the yuan, also known as the renminbi, in the U.S
The changes to the IRS policy, including additional reporting for overseas bank accounts makes holding currency in foreign banks more cumbersome. This development with the Bank of China is an interesting hybrid. Holding foreign currency within the US banking system, including FDIC insurance is an interesting option. It seems this may be a good option for holding cash. A few months ago, I wrote an a blog about people in Russia holding their savings in US dollars or Euros to hedge the risk of their own currency. This is the same concept with holding yuan in the US, and just the fact we are able to do so, may be an indication the 'torch' as the world's great economic power, is being passed from the U.S. to China right before our eyes.Currently, the Bank of China has two offices in New York and one in Los Angeles, and anyone interested in opening an account must do so in person. The banks website BOCUSA.com states,
In addition, accounts opened in the New York branches are FDIC insured.
The Bank of China limits the amount of yuan that can be converted by a U.S.-based individual customer to up to $4,000 a day, with an annual limit of $20,000. The restriction is designed to fend off speculation in the currency, bank officials say. But there is no limit, at least for now, on the amount that can be converted by businesses, so long as they are engaged in international trading. The bank has no restrictions on the ability by U.S.-based customers to convert the yuan back into dollars.