Should you open an FDIC-insured yuan bank account?

By Felix Salmon
January 12, 2011
instructions for opening a yuan bank account here in New York; it seems very easy indeed.

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I’ve been looking at the instructions for opening a yuan bank account here in New York; it seems very easy indeed. Just like a normal US dollar account, it’s FDIC insured, and it pays no interest. So, should New Yorkers with dollar savings convert some part of them to yuan?

On the face of it, the trade is a reasonably attractive one. The Secretary of the Treasury is still complaining loudly that the yuan is undervalued, which means that when you buy it at the current exchange rate, you’re getting a bargain. A Chinese revaluation is going to happen at some point, and when it does, you’ll make money.

On top of that, there’s a simple diversification benefit. The dollar is still the main global currency, but there’s no harm in putting a few eggs in various different baskets just in case.

It’s possible that you’d be better off staying in dollars, of course. Inflation in China is rising, and if the Chinese central bank fails to bring inflation under control, then the real exchange rate could appreciate substantially even if the nominal exchange rate doesn’t move. On the other hand, if the Chinese central bank does bring inflation under control, it will do so by tightening monetary policy, which will put even more upward pressure on the yuan.

It seems to me that the downside is limited, here. As Standard Chartered’s Robert Minikin told Chris Nicholson, “China sees the global financial system as too U.S.-centric and dollar dependent.” As a result, it has every incentive to do reasonably well by those buying yuan, even if China itself is still buying dollars at a rate of $2 billion a day.

The news of the existence of this bank account is only spreading now, but in fact it has been available for the best part of a year already, over which period a saver would have done pretty well, in dollar terms. My feeling is that nothing has really changed, and that if the yuan appreciates by say 6% this year, that’s still a much better return than you’ll get on any dollar CD.


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Felix, I’m a bit confused by why you think the average American is not capable of productively/safely investing in high-quality U.S. stocks like JNJ, GOOG or AAPL rather than buying an index fund or paying a manager, but you do think the average American should consider a zero-interest foreign currency denominated bank account in a currency controlled by a non-transparent autocratic government in a country they will likely never visit. Please let us know when you manage to reconcile these beliefs.

Posted by najdorf | Report as abusive

Now please correct me if I’m wrong here, but doesn’t the ‘F’ in FDIC stand for Federal? Disregard if there was a misplaced memo where International and Federal were chosen to represent the same thing.

Posted by wolfy02 | Report as abusive

This part poisons it for me:

L. Waiver of Jury. You waive the right to demand a trial by jury in connection with any litigation arising from or relating to this Agreement, BOCIBS, or the Online Services.

Any other rights we should give up for them?

Posted by Latmano | Report as abusive

Well I guess we now know that the WSJ reads your blog.


Posted by Chris_Gaun | Report as abusive