Surging Demand for Emerging Market Currencies

China’s yuan will be traded in the Chicago’s CME group this August.

According to the Bloomberg,

CME Group Inc., the world’s largest futures exchange, said it will start yuan contracts to meet rising demand among global investors for products denominated in the Chinese currency.

Trading of the futures, which will be listed on the CME exchange, is due to begin Aug. 22 for September 2011 settlement, the Chicago-based group said in a statement released in Singapore yesterday. The contracts will be quoted in interbank terms, reflecting the number of yuan per dollar, it said.

If China aims to challenge the US dollar’s role as international currency reserve then convertibility is a necessary step towards attaining this goal.

But what caught my eye was the following observation.

From the same article, (bold emphasis mine)

“We see the success of these new contracts following a similar pattern to that of our other emerging-markets products such as Russian ruble and Brazilian real,” Roger Rutherford, London-based managing director of foreign-exchange products at CME, said in the statement. “Given the yuan’s movement toward greater convertibility and the growing offshore trade of the currency in Hong Kong,” the products will enable customers to manage currency risk, he said.

Futures contracts in the ruble and real have seen year-to- date growth of 350 percent and 450 percent respectively, the statement said. CME foreign-exchange volumes averaged 930,000 contracts per day in 2010, up 49 percent versus 2009, reflecting average daily notional value of $120 billion, it said.

So it’s not all about China but about major emerging markets. China would only add weight to this basket.

Yet this looks very much to me as added evidence of the US dollar’s declining role as a reserve currency.