DFI stands for Developing Markets
DFI Money is a finance program that allows people from developing countries to invest in the US stock market. Investors can also use DFI’s currency, the YFII (Yuan Forex International), which fluctuates at a fixed rate of 1 with the USD. A recent article pointed out that this program, combined with skyrocketing paper values for stocks in China, has led to an increase in international real estate prices throughout China and Hong Kong. This speculation points to DFI as one of the multiple factors that may have contributed to these rising prices.
What is DFI Money?
Let us explore the currency’s history and recent price fluctuations. The DFI program was established in 1999 by the World Bank for developing countries to have access to international capital markets via investment funds. DFI is also a platform for exchanging currencies. Since its inception, it has distributed 100 million dollars to developing countries, of which 35 million have been invested in US equity markets (at last count). This funding has come from both individual investors and government agencies. Examples of government contributors include the Chinese government and Japan’s Ministry of Finance. The profits gained from these investments are returned to government agencies, which then reinvest the funds in further parts of the fund.
DFI has a sister program, DFII (Development Financial Institution), which is a sovereign wealth fund that is independent of DFI. The account manager for DFII is J.P. Morgan Chase & Co., whose chief executive, Jamie Dimon, is also chairman of the board for DFI. The reason that these two programs work together is that they aim to provide funding to developing markets by investing in risky assets such as equities and mortgage-backed securities.
What is DFI.money and why is it rising?
The DFI program was launched after the Asian Financial Crisis of 1997, in which the Asian financial system came close to breaking down. The IMF (International Monetary Fund) and other international organizations are responsible for providing capital to countries that need it. Once the fund is created, it is up to the country’s central bank in question to decide on how it will be used. For example, the Hong Kong Monetary Authority (HKMA) funds DFI with HK dollar deposits from mainland Chinese investors – these funds are then stored in US Treasury bonds, which are issued at a fixed rate of one dollar.
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When investors buy US bonds through DFI, they get US dollars denominated in Yuan. This is called a “Yuan-denominated” investment. For example, if an investor deposits USD 10,000 into DFI, the account manager will invest that $10,000 in US Treasury bonds and the investor will end up with 1 million Yuan in his account.
YFII price prediction
DFI is a currency that is pegged to the US dollar, but there is only five billion dollars worth of it in circulation. The price stays at one USD, which makes it a favorite amongst investors who believe that the US dollar will continue to rise. The YFII is on track to become the fifth-strongest currency in the world. Although China’s central bank cannot print money out of thin air, it can lower reserve ratios and inject funds into its economy when necessary, which will lead to an increase in the YFII supply and thus a decrease in its value. Some experts predict this may happen as early as next year.
Significance of DFI and YFII to China’s economy
In contrast with real estate, it is still much easier for Chinese investors to get in on the ground floor of US equities. The value of Chinese property has risen by 15 percent in the last year, while US stocks have increased by 15 to 20 percent. This means that investors are turning to riskier investments. For example, if someone has USD 10,000, he or she will have more return by investing in stocks than real estate. If the currency rises too much as it did in 2011 (it rose from 1 USD to 1.4), the risk to investors would be too great and many will reconsider their options.
Why is the YFII rising?
There are several possible explanations for why the YFII is rising. Two main factors are DFI and China’s economy. Both DFI and China’s economy have shown signs of rising interest recently. For example, the HKMA held its Asia-Europe-America International Monetary Fund conference in Hong Kong on 6 November, which was packed with financial experts and central bankers from around the world. One of the most common topics discussed was how to manage global liquidity in light of problems within many Asian countries, as well as China’s growth slowdown.
