The Chinese Yuan will start trading on the Merc

I'm not sure if this has already been widespread, but today it was announced that the Chicago Mercantile Exchange will start trading contracts on the Chinese yuan as of August 27, this year. Who in their right mind would take the sales side?

You're assuming that:

Do you really follow the currency market? a. The exchange rate will not change before the launch. You have missed something quite important in recent months. Here are the last three moves of the USD/CNY in just three days: The yuan closed to 7,9987 against the dollar (vs. 7,9962 in the official market

Most of those who think without having read the CME statement are the same ones who cry when the market takes them away. You don�t need to have a PhD to understand that if a contract is launched into a stock exchange like Chicago it is because it is validated and there are interested counterparts. Who will take the other side? Because any bank, fund or institutional trader who understands the dynamics of flows with China. Here it�s not about �who would be so crazy?� it�s about understanding the role of speculation and coverage in the markets.

I find it incredible how some keep repeating the same arguments of 2005, as if the market were static. China is opening up its financial system at fast paces and allowing its currency to cotice in a Western market is part of that process. Of course it will not be perfect at first, but if you expect total guarantees to participate, then you don�t understand what it is like to operate in emerging markets. That�s where the opportunities are, not in what is already liquid and predictable.

The idea that "no one is going to want to buy yuan" is ridiculous. There are thousands of reasons to operate that crossing: arbitration, exposure coverage in imports/exports, pure speculation... does no one remember how the euro started? The futures contract of the yuan is not designed only for retailers. It is intended for institutional participants who already have direct or indirect exposure to the Chinese market. And believe me, there are many more of those who think.

Let's see if we understand it: the CME does not launch products blindly. There are feasibility studies, consultations with institutional operators and internal liquidity test. If they announce a contract on the yuan it is because there is real commercial interest behind it. At first there may be wide spreads and shallowness, but that changes quickly if there is demand. It happened with the bitcoin at the CME. It will pass with the yuan. Time and demand will put everything in place.

I find it good to have caution, but to question absolutely everything before even the product is available is simply defeatism. Trading consists of evaluating opportunities, not discarding them by system. No one is saying that it will be the most liquid pair overnight. But if you specialize in frontier assets, that�s where you have the advantage. The one who expects everything to be ready and served, stays behind.

Many who criticize this safe launch don�t operate even EUR/USD without fear. If you�re not willing to assume uncertainty, you�d better stick to state bonds. And that�s not safe today. The yuan is integrating into global financial flows. Do you really think the big ones won�t want an additional instrument to manage it? Don�t underestimate the speed with which the game changes.

I agree that there are still regulatory barriers and certain doubts regarding the arbitration between spot and future. But that�s not enough reason to say it�s unfeasible. Many contracts have started less clearly and today are essential. The market builds liquidity. It�s not born with it. If a useful product is offered, liquidity arrives. Especially if there are banks and funds interested in covering currency risk with China.