I have seen very little coverage of this little gem that popped up the other day: the CME Group is going to be launching three different contracts for Chinese Renminbi/US Dollar exchange futures.

Nobody seems to have notice, but this is HUGE!

Let me repeat, this is ENORMOUS!

OK, you're wondering why, and that's fair. Here's my reasoning:

The Chinese monetary controllers over the last several years have been printing enough Renminbi (aka RMB, aka Yuan, aka CNY) to keep the exchange rate between the RMB and the USD fairly constant. The reasoning for this is that China is so dependent on exports. If the RMB rises in value compared to the USD, Chinese products become more expensive for American consumers. Since America is still China's biggest customer, this would be bad for Chinese exporters.

So when the Bernank gins up some more USD float, the People's Bank of China (PBoC) feels the need to print just as much. This has given America a huge advantage in exporting inflation to China where the finished products are actually created, and China has been paying the price - especially in higher food costs and runaway bubbles in stocks and coastal real estate.

I've written about it before, but just to repeat, the PBoC is trying to walk a very fine line between not crashing the USD market before they get out and not dumping China into a hyper-inflationary collapse. That's why they are continuing A) to print enough RMB to keep the USD exchange rate fairly constant, B) encouraging the ownership of hard and productive assets (gold, silver, farms, factories, etc), and C) raising reserve requirements on banks to pop the real estate and stock bubbles.

So what's different now? Officially nothing. There hasn't been any announcement about a change in policy with regard to point A. But the CME Group seems to think that there is demand out there for those who think that this will not always be the case. And I think CME is probably right. There will come a day not too far in the future when China will announce that they will end the policy of a semi-fixed exchange rate. When that happens, expect the USD to enter free-fall mode as its largest non-monetizing creditor says no more budget deficit for you! But they have a lot of work to do before that day comes, so it's not August 22nd.

Oh, and did you know that you can play the game too by opening a bank account denominated in RMB?