Yuan swiftly over­tak­ing euro in trade

Open­ing up of fi­nan­cial sec­tor and in­ter­na­tion­al­iza­tion buoy­ing use

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

China’s yuan has sur­passed the euro to be­come the world’s sec­ond-most widely used cur­rency in global trade fi­nance, ac­cord­ing to data re­leased by the So­ci­ety for World­wide In­ter­bank Fi­nan­cial Telecom­mu­ni­ca­tion.

An­a­lysts said the open­ing up of China’s fi­nan­cial sec­tor and the broader in­ter­na­tion­al­iza­tion of the yuan has in­creased the use of the cur­rency.

The yuan cap­tured an 8.66 per­cent share of let­ters of credit and col­lec­tions in Oc­to­ber, while the euro’s was 6.64 per­cent, Bel­gium-based fi­nan­cialmes­sag­ing plat­form SWIFT said in a state­ment.

The yuan’s pres­ence in global trade fi­nance has grown sig­nif­i­cantly in the past two years.

In Jan­uary 2012, the yuan’s share of global trade fi­nance was only 1.89 per­cent to the euro’s 7.87 per­cent, ac­cord­ing to SWIFT data.

The Chi­nese main­land, Hong Kong, Sin­ga­pore, Ger­many and Aus­tralia were the top users of yuan in trade fi­nance, SWIFT said.

“The ren­minbi is clearly a top cur­rency for trade fi­nance glob­ally and even more so in Asia,” ac­cord­ing to Franck de Praetere, SWIFT’s Sin­ga­pore­based head of pay­ments and trade mar­kets for Asia Pa­cific.

Hong Kong is the largest yuan de­posits pool out­side the Chi­nese main­land with a record 782 bil­lion yuan ($ 128 bil­lion) in Oc­to­ber. The Peo­ple’s Bank of China, the cen­tral bank, an­nounced agree­ments ear­lier this year to start di­rect cur­rency trad­ing be­tween the yuan and the Bri­tish pound, as well as the Sin­ga­pore dol­lar.

The pay­ment value of the yuan also has been ris­ing. Daily yuan trans­ac­tions jumped from $ 34 bil­lion in 2010 to $120 bil­lion in April 2013, mak­ing it the ninth most-traded cur­rency in the global mar­ket sys­tem, ac­cord­ing to a Septem­ber re­port by the Basel, Switzer­land-based Bank for In­ter­na­tional Set­tle­ments.

China re­cently con­cluded a cur­rency swap deal with the Euro­pean Cen­tral Bank. Driv­ing the deal short- term was the re­lax­ation of per­sonal yuan con­ver­sions, said a note from DBS Bank (Hong Kong) Ltd.

The yuan has been see­ing a greater role in global trade and in­vest­ment, said an­a­lysts.

“The re­lax­ation or re­moval of the 20,000-yuan daily cap on per­sonal ren­minbi con­ver­sion could al­ter the pic­ture in 2014,” said Chris Le­ung, DBS Bank (Hong Kong) Ltd’s ex­ec­u­tive di­rec­tor and se­nior econ­o­mist for group re­search.

“Per­sonal yuan wealth man­age­ment prod­ucts would flour­ish ini­tially, and cor­po­rate us­age of the yuan would grad­u­ally pick up as the size of the yuan pool in Hong Kong in­creases and yuan prod­uct in­no­va­tion ad­vances,” he said.

In the past quar­ter, some 40 per­cent of com­pa­nies in Hong Kong sur­veyed by DBS said they ex­pect yuan trade set­tle­ment to reach 30 per­cent of their to­tal trade set­tle­ment within five years.

Au­thor­i­ties have loos­ened con­trols on ex­change rates and bor­row­ing costs, said Yi Gang, deputy gov­er­nor of the cen­tral bank at a re­cent con­fer­ence.

On Mon­day, the cen­tral bank re­leased guide­lines for fi­nan­cial sup­port for the China (Shang­hai) Pi­lot Free Trade Zone, which said that in­sti­tu­tions in the FTZ may bor­row funds from over­seas. Banks in Shang­hai can con­duct yuan cross-bor­der set­tle­ments for cur­rent ac­counts and di­rect in­vest­ment busi­nesses.

“We think the guide­line re­flects the cen­tral bank’s longheld strat­egy of push­ing for fi­nan­cial re­forms when­ever and wher­ever pos­si­ble, and to force re­forms on the do­mes­tic fi­nan­cial sec­tor through open­ing up,” said Jian Chang, an an­a­lyst with Bar­clays Re­search in a re­cent note.

“It also high­lights the con­tin­ued com­mit­ment of the cen­tral bank to push for fi­nan­cial lib­er­al­iza­tion, par­tic­u­larly yuan con­vert­ibil­ity un­der the cap­i­tal ac­count, as well as in­ter­est rate lib­er­al­iza­tion.”

The yuan has ap­pre­ci­ated 2.3 per­cent against the dol­lar in 2013, the best-per­form­ing cur­rency in Asia, ac­cord­ing to Bloomberg.

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