Are you tired of putting your money into a savings account only to see it languish there and basically depreciate in value as inflation overwhelms its meager interest? What if you could put your money in a bank and see it grow more than 40%?
According to Brett Arends, writing for SmartMoney.com, that may not be as crazy as it sounds.
The one caveat is that you have to put your money into one of three U.S. branches of the Bank of China, which, according to The Wall Street Journal, has started allowing American customers to open an account and to invest up to $4,000 per day — and a total of $20,000 a year — in Chinese yuan, or renminbi. Until now, writes Arends, you only had a few options to hold money in yuan, which is considered a "closed" currency managed, and protected, by Beijing.
Arends says that now you can enter a Bank of China branch, there are two in New York, and one in Los Angeles, fill out some paperwork to open an account and provide two forms of ID. And there's a minimum deposit of $500.
But when does the 30% in income happen? Well, consider this. Basically, you’re investing in Chinese currency, which according to Arends:
- Is very unlikely to go down
- Is very likely to go up
- Nowhere else is paying a lot of interest
- It will diversify your portfolio
- And, finally, it may offer you a hedge against the decline of the U.S. economy.
Arends says the yuan is very unlikely to go down because it is already undervalued. Beijing has spent hundreds of billions of dollars keeping the currency artificially cheap for years to boost exports. He adds that no one is really sure about the discount but right now each yuan costs about 15.1 cents.
Fair value
Most economists say fair value is somewhere north of 18 cents — and maybe a long way north. According to the International Monetary Fund, the value of the yuan in real, purchasing-power terms is about 27 cents, or an increase of 44 percent .
According to Arends, one thing is clear, anyone buying yuan today is getting a pretty decent margin of safety. The real enticement he adds is that the Bank of China U.S. accounts also come with FDIC deposit insurance, which will protect your deposit from outright forfeit if the bank were to fold. It won’t protect you from any exchange-rate fluctuations however so if Arends is wrong you could lose money.
Still, Arends contends that the yuan is very likely to go up in value because China is growing rapidly, it’s a manufacturing powerhouse and it’s running an enormous trade surplus. Countries like that usually have very strong currencies. He points to the Japanese yen or the old German Deutsche mark as a comparison.
And these days, he says a rising yuan may be in Beijing's interest. China no longer needs to keep its currency cheap because the strategy has already worked. China has taken over a vast amount of manufacturing from the U.S. moving up from making socks and toys to iPads and stealth bombers. Based on purchasing-power parities, the Chinese economy is now expected to overtake that of the U.S. within six or seven years.
