China’s latest export: Bank Accounts (Photo: Stringer/REUTERS)
In the middle of last month, the Bank of China quietly announced a startling new bank account available to America citizens. At one of three Bank of China branches in the United States–two in New York and one in Los Angeles–an American can walk in, open an account and convert their grubby dollars into the currency of the hottest, and arguably the most important, economy in the world, the Chinese renminbi.
To get a better sense of what this is all about, I went to the Bank of China’s main branch in Manhattan on 5th Avenue and 48th Street. The branch office is fairly ornate and staid, a study in 1950s elegance. The staff couldn’t have been more welcoming, and I was ushered over to a young Chinese-American who walked me through the account process and answered all my questions. The biggest of which was this: Why would anyone do this?
Now, the Chinese renminbi or RMB (the “People’s Money”, often referred to as the yuan) has been much maligned in the United States for its low valuation and its harmful effect on the American economy. Official Washington, from President Obama to much of the Congress, have criticized the Chinese government for maintaining an artificially low valuation and purportedly giving Chinese companies an unfair competitive advantage and accelerating the loss of American manufacturing jobs.
The passions stirred are real – and China has reacted to U.S. criticism with its own nationalistic defense, seeing in American attitudes one more example of the West trying to hold China back. But the reality is more ambiguous, especially given that China has been allowing its currency to appreciate after a two-year freeze during the financial crisis and that the U.S. has been shedding manufacturing jobs for decades, long before the current rise of China. In addition, China needs the currency to gain in value to increase its domestic wealth and become less reliant on a fickle export market, but it is loath to under American pressure. The currency war is nothing if not a proxy of overall China-U.S. tensions.
So the unveiling of this new product by the Bank of China came as a surprise, and may have been bigger news were it not for the massive changes sweeping through Tunisia and now Egypt.
The Chinese currency remains unconvertible. It does not float on international exchanges; you cannot trade it, and it does not fluctuate in value based on the same global currency market that determines how many Euros there are to the dollar or how Mexican pesos you get for one Turkish lira. The new bank account does nothing to alter that, which makes opening an account in the United States denominated in RMB that much odder.
Any American citizen can open an account with a minimum of $500. Technically, it is two accounts, one opened in dollars and the other then converted into RMB at the official exchange rate (and $1 currently gets you 6.56 units of Chinese currency). No matter. The point is this: If you’re in New York or LA (and you can only open this account at those branches in person), you can have your very own Chinese currency account.
So should you? To begin with, the very nice Bank of China representative, who talked me to the process, explained that you can’t actually do anything with the account.
“Can I write checks in Chinese currency?” I asked.
“No, you cannot.”
“Can I withdraw Chinese currency?”
“Can I go to Beijing and withdraw currency from my account there?”
“Can I have a debit card and use it in Shanghai?”
“Can I deposit currency in my account at the airport in Hong Kong on my way back to the states?”
“Can I write checks in dollars?”
“So what can I do?”
“You can deposit at minimum of $500 and it will be converted to RMB. If the value of the Chinese currency rises, your dollar account will increase in value. Then you can withdraw dollars. And it is insured by the FDIC.”
“Why would I want to open an account that I can’t really use?”
“Well, if the rate on your savings or money market account is barely zero percent and if the Chinese currency appreciates between 3% and 5% a year as it is expected to, then you can have a savings account at the Bank of China that yields you much more than any equivalent domestic American savings account with the same FDIC protection.”
So there you have it: the Bank of China has created a savings account for Americans that has a strong likelihood of significantly outperforming a U.S. savings account. The Chinese have been making cars, solar panels, electronics and furniture that outcompete American alternatives; now they are creating better bank accounts?
Well, that depends on where you think the renminbi is headed. Unlike a typical savings account, the account at the Bank of China pays no interest. The account rises and falls with the RMB. And the Bank of China cannot guarantee that its currency will appreciate. What’s more, FDIC insurance doesn’t protect you against the possibility that your investment in RMB, which is essentially what you are doing, will lose money. The FDIC insurance only comes into play in the unlikely event of that the Bank of China becomes insolvent, and you unable to withdraw your money.
But all things being equal, I do think there is something to the Bank of China’s pitch. US savings accounts pay close nothing these days. And it is in China’s national interest to allow the RMB to appreciate at least 3% to 5% a year for the next few years. It enhances the Chinese economy and simultaneously gives a nod to U.S. demands that China revalue. The result is that average investors – or at least those living in or passing through New York or L.A. who happen to know about this rather obscure and arcane account being offered – can open a juiced-up, no-guarantees-but-likely-to-gain-more than-your-average savings account in one of the leading banks of China.
So have the floodgates opened? I was told that demand had been brisk, but no figures are being released and the afternoon I was at the main branch, no one else was there. Maybe it seems to be good to be true, but in this case, maybe not. You could do worse than park $500 in an account insured by the U.S. government tethered to the growth of the domestic Chinese economy. And the Chinese government could do worse than curry American favor – and attract American dollars – than offering average Americans a chance to enhance their savings care of China’s economic miracle. Renminbi savings bonds, here we come.