Yuan set­tle­ment ex­pands along the Belt and Road

China Daily (USA) - - BUSINESS - By ZHONG NAN in Kash­gar and JIANG XUEQING in Bei­jing Con­tact the writ­ers at zhong­nan@chi­nadaily.com.cn and jiangx­ue­qing@ chi­nadaily.com.cn

Kash­gar, a ma­jor pre­fec­ture of north­west­ern China’s Xin­jiang Uygur au­ton­o­mous re­gion, has de­vel­oped ren­minbi cross-border pay­ment and re­ceipt busi­ness with 15 coun­tries and re­gions be­tween 2011 and June 2016, said a cen­tral bank of­fi­cial on Tues­day.

Man­aged by six com­mer­cial banks in Kash­gar, the to­tal cross-border ren­minbi set­tle­ment amount reached 4.64 bil­lion yuan ($695 mil­lion) by June this year.

Wang Xiaodong, pres­i­dent of Kash­gar cen­tral sub-branch of the Peo­ple’s Bank of China, said as surg­ing trade ac­tiv­i­ties push China and more coun­tries along the Belt and Road Ini­tia­tive to­ward a new cross-border ren­minbi set­tle­ment mech­a­nism, ren­minbi may come to pack more power com­pared with the green­back when mak­ing pay­ments in these coun­tries.

As the dom­i­nant re­serve cur­rency in the world, the US dol­lar is mostly used in global trade trans­ac­tions and for in­voic­ing goods and ser­vices. The ma­jor­ity of trans­ac­tions be­tween Chi­nese and for­eign com­pa­nies are still based on its ex­change rate.

“We welcome more coun­tries and re­gion son these two trad­ing routes to set­tle bi­lat­eral trade in lo­cal cur­ren­cies. The im­ple­men­ta­tion of a cur­rency set­tle­ment agree­ment will pro­mote more cur­rency ex­changes be­tween the two sides,” said Wang.

Ying Jian, se­nior econ­o­mist of the ren­minbi busi­ness divi­sion of the eco­nomics and strate­gic plan­ning depart­ment at Bank of China (Hong Kong) Ltd, said: “The Belt and Road Ini­tia­tive fo­cuses on im­prov­ing con­nec­tiv­ity among rel­e­vant coun­tries and re­gions. Dur­ing the process, fi­nan­cial co­op­er­a­tion will play a guid­ing role. As a key fac­tor of fi­nan­cial co­op­er­a­tion, the ren­minbi busi­ness is highly im­por­tant to the ini­tia­tive.”

Cur­rently, the use of ren­minbi in coun­tries along the routes of the Belt and Road Ini­tia­tive is still lim­ited in terms of depth and width, partly be­cause Chi­nese banks are still at the be­gin­ning stage of de­ploy­ment along the Belt and Road Ini­tia­tive, he said.

Statis­tics show that the ren­minbi set­tle­ment vol­ume took up slightly more than 20 per­cent of the gross set­tle­ment vol­ume in dif­fer­ent cur­ren­cies in rel­e­vant coun­tries; and the ren­minbi set­tle­ment vol­ume in coun­tries along the Belt and Road ac­counted for nearly 20 per­cent of the to­tal ren­minbi set­tle­ment vol­ume world­wide.

But Ying saw many op­por­tu­ni­ties and great po­ten­tial for growth in ren­minbi busi­ness. With Chi­nese com­pa­nies ex­pand­ing their busi­ness in rel­e­vant coun­tries, they will in­creas­ingly use the ren­minbi for pay­ment, set­tle­ment and ac­qui­si­tions.

“Lo­cal residents will also use the ren­minbi for as­sets man­age­ment, and lo­cal com­pa­nies will use the ren­minbi and US dol­lar for fi­nanc­ing. Fur­ther­more, as high risks ex­ist in coun­tries along the Belt and Road, a set of ren­minbi risk man­age­ment so­lu­tions and de­riv­a­tive fi­nan­cial in­stru­ments are needed to hedge against risks dur­ing the process of in­vest­ment, merg­ers and ac­qui­si­tions,” said Ying.

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