The BBC is correct in their analysis that allowing these renminbi-denominated spot gold contracts is a major step in “internationalizing” the Chinese currency.  This will start making it a larger player on the global currency scene like the Dollar, Euro, Pound and Franc.  As China becomes more developed and their per capita income rises, the demand for there currency will increase and more people will be (hopefully) selling many goods to the Chinese domestic economy.

Over the next 50-100 years, the probability that Yuan will be the most important currency is over 50% in my opinion.  Hong Kong is a important financial market so this is a big step.  They have already been doing currency swaps in the Pan-asian region that does not involve the U.S. dollar.  The United States needs to get it house in order before the world finally loses confidence in the strength of their currency.

BBC News (Staff Reporter): The Chinese Gold & Silver Exchange Society (CGSE) said it will offer offshore renminbi-denominated spot gold contracts to investors.  The move comes amid a push by Chinese authorities for a more international role for its currency.  Hong Kong is the world’s third-largest gold trading centre.

“By attracting both local and international investors, the Renminbi Kilobar Gold is a significant step towards internationalizing the renminbi,” said Haywood Cheung, president of CGSE.   The growth of the Chinese economy coupled with a push by the authorities for a more global role for their currency has seen an increased demand for yuan-denominated investment products.  At the same time Hong Kong has been trying to promote the city as the offshore trading hub for the yuan.  The demand has grown further by the increasing amount of offshore deposits of the Chinese currency in the city which rose 6.4% in August to 609bn yuan ($95bn; £60bn).

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More rhetoric about the Yuan and trade imbalances.  I do not agree that currency valuations are not a major part of the problem.  If country A has an undervalued by 40% and country B has basically free trade, country A will have an advantage when trading with B.  Because A’s (Yuan) currency will be cheap, it will encourage business in B to do production in A because B’s (Dollars) will exchange for much more of A’s (Yuan) so they will go farther in A’s economy to purchase materials and labor.

Bottom line is that the United States population is addicted to cheap goods from foreign countries and China is the 800 pound gorilla in that area so they are a large target for this kind of rhetoric.  Until we realize that we will not be able to keep the standard of living we are used to in America without jobs that support an income of what we would define as a middle class standard.  We either need to support native production that would support jobs that are usually of a higher income level, OR we need to have extensive retraining programs so that when these production jobs go overseas , the displaced workers will be able to get the skills they need to find a job in another part of the economy.

China’s commerce minister warned the United States on Sunday against imposing trade sanctions over Beijing’s currency controls, and said his country was likely to report a trade deficit in March.

Washington and other trading partners are pressing China to ease controls that have kept its yuan currency steady against the dollar for 18 months to help its companies compete amid weak global demand. Some U.S. lawmakers have demanded to have China declared a currency manipulator in a U.S. Treasury Department report due out next month, which could precede possible trade sanctions.

Asked what measures China would adopt if the Treasury Department declared it a currency manipulator, Chinese Commerce Minister Chen Deming said China would not sit idly by and reiterated Premier Wen Jiabao’s statement a week ago denying that the yuan was undervalued.

“If (the Treasury Department’s) reply is accompanied by trade sanctions and trade measures, we will not ignore it,” Chen said. “If it is followed by any international legal lawsuit against China, we will take them on.”

Business groups say China’s currency controls keep the yuan undervalued by up to 40 percent, giving its exporters an unfair price advantage and swelling its multibillion-dollar trade surplus.

Analysis: We need to focus on a new doctrine of “Fair Trade” and get away from totally free trade in the U.S. or get used to falling wages and less middle classed jobs for some time until these low wages countries build up their standard of living to reduce the incentive for jobs to move from high to low wages areas.  Higher education is the key.