Question

What do you think about the direct conversion between Renminbi and Swiss Franc? Explain.

How do you think the direct conversion between Yuan and Swiss Franc will affect the dollar and euro currencies?

Answer 1

The direct conversion between Reminbi and Swiss Franc will lower trading costs for China and Switzerland, facilitate use of the two currencies in bilateral trade and investment and boost economic and financial cooperation between the two countries, Direct trade increases efficiency and cuts transactions costs as deals do not use a third currency like the US dollar. China was trying to boost Ranminbi as a global currency and internationalization of Yaun.

Affect of an internationalization of the yuan on the sensitivity of the euro-dollar exchange rate to various shocks, in two different exchange-rate regimes.The counter-intuitive effects arising due to a fixed exchange rate in China (e.g. a transfer of wealth from China to the United States makes the dollar depreciate against the euro) are more limited when the
yuan internationalizes, and also stabilizes the euro dollar exchange rate in a floating regime. It also helps euro-dollar variations to stabilize net foreign asset positions following a trade shock, through enhanced valuation effects.