Here's a New Way to Bet on China: Open a Renminbi Bank Account

China's economy is booming, and in the West, everyone from President Obama on down is demanding that the Chinese currency be allowed to rise in value. Now, it's possible for small investors in the U.S. to capitalize on this opportunity. The Bank of China's New York Branch announced this week that Americans will now be able to open FDIC-guaranteed accounts in the bank in a way that was never before permitted -- by converting their deposits into the Chinese currency, known officially as the renminbi and colloquially as the yuan.

According to the bank's website, account owners can exchange as much as $4,000 worth of renminbi a day, up to a maximum of $20,000 a year. Of course, there isn't much you can do with renminbi in the U.S. beyond putting them under your mattress (and you can't even do that, as at the moment, the bank won't let you take U.S. withdrawals in renminbi). Nor do the accounts pay interest.

So what's the advantage?

"The Chinese yuan has just gone in one direction for the past couple of years," says Kathy Lien, who has just published a new book on foreign exchange investing, The Little Book of Currency Trading. Not only is the Chinese economy doing exceptionally well, Lien says, but foreign governments -- led by the United States -- are pressuring Beijing to let its currency float higher in order to offset huge trade imbalances.

"I think that pressure is not going to abate any time soon," Lien says, "and the yuan could appreciate another 10% to 15% over the next couple of years. It is something that many investors are looking at."

Other Ways to Bet on the Yuan

If you don't feel like trekking to New York to open an account at the Bank of China, your options are limited. The renminbi is hard to come by because China uses the most stringent capital controls: The currency is only legally traded within China, in Hong Kong and between specified trading partners such as Shenzen and Malaysia.

But there are alternatives. Professional currency traders use something called non-deliverable forwards to match the moves of the renminbi, but Lien says NDFs are only for the most sophisticated institutional investors and hedge funds. She recommends ETFs such as the Wisdom Tree Dreyfus Currency Income ETF (CYB), which invests in short-term securities denominated in renminbi. But the fund's one-year gain is only 0.43%, so investors would have to have some patience.

Another possibility: Market Vectors Chinese Renminbi/U.S. dollar exchange traded notes, which are similar to ETFs, but are unsecured debt securities issued by Morgan Stanley to track the S&P Chinese Renminbi Total Return Index. Those are up a whopping 0.4% in the last year.

About to Float, or All for Show?

But past conditions may not continue to prevail: Investors are counting on China to take the limits off the appreciation of the renminbi that have been in place for the past few years. Between 2005 and 2008, for example, the currency rose 21% against the dollar, then did virtually nothing for two years.
Now, China is facing a surge of inflation at home and one way to control that problem would be to allow its currency to rise, meaning that imported goods like food would cost less in local Chinese terms.

The Chinese are also keen to see their currency gain international status.

"Ideally, they would like to see its status rival that of the euro or the U.S. dollar, but of course that won't happen unless they freely float the currency," Lien says. "But as we get closer to that possibility, central banks around the world have to start buying Chinese yuan in order to boost their reserves of that currency and match trade activities."

Of course, the recent opening of the renminbi bank accounts in the U.S. may just be part of the public relations show China is mounting in advance of President Hu Jintao's visit to the White House next week. As Obama presses him to allow the renminbi to climb, Hu can claim that his country is doing everything possible to improve the exchange rate -- including allowing Americans to invest in it's currency more freely.

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I think that the bank account set up to take advantage of the rising currency would only realize half the potential currency inflation, because the ability to set up the bank account was created to destroy Yaun value so that the Chinese don’t have to raise the currency as much. Is this a logical way of looking at the topic?

February 19 2011 at 3:51 PM Report abuse rate up rate down Reply

We could sell California to China in exchange for what the US owes them. There are historical precedents: The Louisiana purchase by the US gave money to Napoleon so he could pay for wars and we could use this money to pay for Iraq and Afghanistan.
Russia sold Alaska to the US.
Without a massive Federal debt (and California's) this would be a pretty good country. No interest payments, an immediate reduction of the Federal workforce with their inflated salaries and pensions. This could bring a large reduction of taxes and so businesses could afford to create jobs.
Laws could be passed that the Government could not spend more then its income and require it to have reserve amounts of money to cover natural disasters.

January 17 2011 at 12:31 AM Report abuse +1 rate up rate down Reply

Support American made my company. Gloves made in the USA.

January 16 2011 at 8:21 PM Report abuse rate up rate down Reply

Suport america buy AMERICAN PRODUCTS

January 16 2011 at 7:50 PM Report abuse +3 rate up rate down Reply

stop giving tax breaks to companies that move there manufactuing oversaes fedral state and local goverments find ways to help manufacturing stay in the us

January 16 2011 at 7:48 PM Report abuse +1 rate up rate down Reply

boycott all american companies that moved there manufacturing off shore they took the bush tax breaks and moved overseas boycott walmart target and any other store until they start buying american made goods a week or two of boycotting will work wonders, the american people can turn this thing around look in the mirror and you will see your own worst enemy

January 16 2011 at 6:20 PM Report abuse +3 rate up rate down Reply
1 reply to joe75616's comment

Over regulation drove them away.

January 16 2011 at 7:59 PM Report abuse rate up rate down Reply

The world is a great deal smaller than it was even a decade ago. Communications and transportation have improved dramaticly and lowered cost. These changes are key reasons why the trade deficits have been growing in the US. Without them, the US inflation rate over the past 10 years would certainly have been double the inflation rate and everyones purchasing power would be substantially reduced. Basic economic also dictate that the most efficient organizations will survive. Having becomin complacent and having an attitude were the biggest and best for decades, business have not invested in the technology to keep manufacuring in US. They also have found it easier to do business overseas than to do business in the US due to government and organized labor.

How do we reduce our reliance on imports? The variables that are driving imports are many and each of these can be addressed. First, the labor component. Since there is such a large variance in labor costs, to retain and return to MADE IN USA, we need to engineer our manufacturing process to keep the labor costs as low as possible. In China, the average labor cost is 3 to 5% of the selling price. Depending on the indusry in US, the average labor cost of the selling price is typically 25 to 30% or more. This is the huge discrepancy that is difficult for the US to overcome other than engineering product to have lower labor costs.

Second, the logistics and the transportation costs from overseas are very low. We need to focus on lowering our transportation costs within the US so that it competitive to ship to the coasts which would again, provide cost effectiveness.

Third, we need to focus on innovation. Off shore manufacturers are great copiers of products but rely on foreign designs. Continuous improvement will allow us to return to the US manufacturing.

Fourth, we need to minimize, not eliminate, costly government regulation on business. There are many regulations that add little or no value but have been forced upon business by irrationsl impact of loud minorities versus actual fact based decisions.

Fifth, we need to recognize that the global economy will not leave but is here to stay. We can complain about China, but by putting plans in place to change, we will not change. Our government "CAN NOT" solve the problem. In fact, they can only create more problems. Business leaders and labor leaders must engineer solutions that will be accepted by US consumers. Only then, will we be able to turn the ship arround and make made in the US and purchased by US citizens the track to returning the US economy to the track and remaining the premier manufacturing and development environment in the world.

January 16 2011 at 11:23 AM Report abuse +2 rate up rate down Reply

Let Walmart and the other big box stores keep their ***** made junk. People leave it on the shelves. Soon they'll be crying for american made goods to sell to their customers. Its our own fault. Look for made in america, not asembled in america, made in chinkland.

January 16 2011 at 9:32 AM Report abuse +6 rate up rate down Reply

Americans are idiots! You want unemployment to go down, the deficit and to live the AMERICAN dream? Stop giving your money to CHINA! They do not like us anyway! That aside, this country has policies that will kill this empire. Great Bitian is known as just Britian now. We will soon be known as Chimerica if we do not stop this bullshit! You want a great country again? Get rid of illegal immigrants that are bleeding us dry, STOP buying everthing from China, stop sending our jobs overseas. WE THE PEOPLE are the only ones that can do it Corporate America will not. Only buy from companies that are HERE. YES we will for a while pay more, BUT compition will bring the prices down once coprate America relises that America is only buing American. IF we don't kiss our Country goodbye!

January 16 2011 at 8:18 AM Report abuse +4 rate up rate down Reply
3 replies to nconstinc's comment

Great ! How about telling people how to help the USA ? Who's side are you on ?

January 16 2011 at 7:39 AM Report abuse +5 rate up rate down Reply