OEMs, Yuan contracts and supplier costs

An article in the Wall Street Journal (Oct 3, 2011) describes China’s attempts to make the Yuan a global currency and its role in supplier contracts. Current rules to buy and sell yuan involve a lot of paperwork, as a result of which contracts are stated in US dollars. But the associated currency risk for Chinese suppliers causes prices to be higher.  Should US firms move to contracts denominated in yuan to lower supplier prices ? Should the associated paperwork etc to pay in yuan be treated as a switching cost whose benefits will be realized over time due to lower supplier costs ? Given that the yuan is not a freely traded currency, will US firms end up with a lower or higher overall risk in their supply chains ? Will it require more careful monitoring and use of their global supply chains to manage the associated risk ?

About aviyer2010

Professor
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