Investing in Chinese Yuan (and Shorting the Dollar)
Yuan / RMB (Photo credit: adkorte)
If you believe that the dollar will lose value relative to the Chinese yuan, as China continues to grow in economic prominence and the US economy continues to struggle,  while the Fed inflates away the huge public debt burden, there are a few ETF's that offer exposure to the Chinese currency that might be worth considering.
It's no secret that China has manipulated its currency in the past, artificially lowering it's value relative to the dollar to support Chinese exports. Â It's also no secret that China has a lot of cash now, is aggressively investing globally, is buying gold, wants to diversify away from the dollar and wants to make its currency a global reserve currency.
In fact, China has entered into agreements with its trading partners to settle directly in Chinese yuan, including Japan, Africa and recently, Australia. Â This is significant because previously, all trades had to be first settled in dollars.
As you can see in the chart below, the "spread" between the rate of appreciation of the dollar and the rate of appreciation of the yuan (I used one of the larger yuan ETF's - CYB as a proxy for the value of the currency) has widened out significantly over the past year. Â It seems that in all the global turmoil and rush to US dollars and Treasury securities for "safety," the dollar has appreciated significantly over the past year and may be set for a major crash relative to the yuan. Â This would especially hold true if China's economy continues to grow strongly (7.6% year over year in the quarter that just ended in June) and the US continues to grow slowly or slips back into recession.
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