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Friday, 20 February 2009
Beijing takes first step to regionalise yuan
While cynics scoff at the idea that the yuan could someday become a regional or global currency, China’s efforts to push loans and trade in yuan in Asia suggest it is taking the first, albeit tiny, step in that direction.
(SINGAPORE) While cynics scoff at the idea that the yuan could someday become a regional or global currency, China’s efforts to push loans and trade in yuan in Asia suggest it is taking the first, albeit tiny, step in that direction.
The yuan’s journey from a controlled, partially convertible currency to a liquid, regional medium of exchange will be a long one, reflecting the government’s desire to uphold economic stability above all else.
Also, Beijing has always been wary of moving too quickly to open up its markets fearing that may leave the economy vulnerable to sudden shifts in capital.
Still, for now, it is testing the waters. Last December, China said the yuan could be used for the settlement of trade between the industrial areas of the Pearl River Delta and Yangtze River Delta and the Chinese territories of Hong Kong and Macau. And Asean members would be permitted to use yuan in their trade with China’s southeast provinces of Guangxi and Yunnan.
‘This is a fascinating development and clearly part of Beijing’s ambition to regionalise the yuan and to help local trading companies,’ said Stephen Green, Standard Chartered Bank’s China research head.
China has offered cheap loans to foreign importers who buy Chinese goods. Most of these borrowers are now compelled to use the yuan to settle their loans with China.
The Chinese government has also urged banks to offer more cheap yuan loans to foreign firms. State-owned Export-Import Bank extended a US$200 million loan to Myanmar in January to pay for imports of equipment from China to build a power station.
The bank offered US$4.6 billion in such loans to foreign firms to buy Chinese goods from 1994 to 2007.
‘This is good to help educate regional traders about the yuan and give them a chance to get familiar with the currency,’ Mei Xinyu, a researcher for the Chinese Commerce Ministry, said.
Beijing has said these efforts are geared towards promoting the country’s international trade and helping Chinese companies limit their currency exposure, while giving foreign firms a chance to familiarise themselves with the yuan.
‘Making the yuan a regional currency will serve China well,’ said Zhang Bin, an analyst at the Chinese Academy of Social Sciences, a key government think-tank.
‘It can reduce the troubles of managing huge foreign exchange reserves. And, looking forward, it will eventually give China more power in the financial market to match its economic size and foreign exchange reserve levels,’ Mr. Zhang said. China’s US$2 trillion foreign reserves, the world’s largest, are mainly held in dollar assets, such as in US Treasuries.
Wu Xiaoling, a parliamentarian and former central bank deputy governor, wrote in a recent edition of the financial magazine Caijing that, for now, there is no substitute for the dollar as the main international currency.
‘However, from a long- term perspective, the world should have more choices. And the yuan can possibly become one of them as long as we make good preparations on the economic and financial fronts,’ she wrote.
However, releasing the reins significantly on the closely managed currency could prove far more difficult for a government that puts economic stability above all else. The more the yuan moves offshore, the more that companies using it will want access to hedging markets to manage their currency exposure and trading risks.
Until there are active hedging markets, such as swaps and futures markets, companies offshore might remain lukewarm about adopting the yuan.
1 comment:
Beijing takes first step to regionalise yuan
Reuters
12 February 2009
(SINGAPORE) While cynics scoff at the idea that the yuan could someday become a regional or global currency, China’s efforts to push loans and trade in yuan in Asia suggest it is taking the first, albeit tiny, step in that direction.
The yuan’s journey from a controlled, partially convertible currency to a liquid, regional medium of exchange will be a long one, reflecting the government’s desire to uphold economic stability above all else.
Also, Beijing has always been wary of moving too quickly to open up its markets fearing that may leave the economy vulnerable to sudden shifts in capital.
Still, for now, it is testing the waters. Last December, China said the yuan could be used for the settlement of trade between the industrial areas of the Pearl River Delta and Yangtze River Delta and the Chinese territories of Hong Kong and Macau. And Asean members would be permitted to use yuan in their trade with China’s southeast provinces of Guangxi and Yunnan.
‘This is a fascinating development and clearly part of Beijing’s ambition to regionalise the yuan and to help local trading companies,’ said Stephen Green, Standard Chartered Bank’s China research head.
China has offered cheap loans to foreign importers who buy Chinese goods. Most of these borrowers are now compelled to use the yuan to settle their loans with China.
The Chinese government has also urged banks to offer more cheap yuan loans to foreign firms. State-owned Export-Import Bank extended a US$200 million loan to Myanmar in January to pay for imports of equipment from China to build a power station.
The bank offered US$4.6 billion in such loans to foreign firms to buy Chinese goods from 1994 to 2007.
‘This is good to help educate regional traders about the yuan and give them a chance to get familiar with the currency,’ Mei Xinyu, a researcher for the Chinese Commerce Ministry, said.
Beijing has said these efforts are geared towards promoting the country’s international trade and helping Chinese companies limit their currency exposure, while giving foreign firms a chance to familiarise themselves with the yuan.
‘Making the yuan a regional currency will serve China well,’ said Zhang Bin, an analyst at the Chinese Academy of Social Sciences, a key government think-tank.
‘It can reduce the troubles of managing huge foreign exchange reserves. And, looking forward, it will eventually give China more power in the financial market to match its economic size and foreign exchange reserve levels,’ Mr. Zhang said. China’s US$2 trillion foreign reserves, the world’s largest, are mainly held in dollar assets, such as in US Treasuries.
Wu Xiaoling, a parliamentarian and former central bank deputy governor, wrote in a recent edition of the financial magazine Caijing that, for now, there is no substitute for the dollar as the main international currency.
‘However, from a long- term perspective, the world should have more choices. And the yuan can possibly become one of them as long as we make good preparations on the economic and financial fronts,’ she wrote.
However, releasing the reins significantly on the closely managed currency could prove far more difficult for a government that puts economic stability above all else. The more the yuan moves offshore, the more that companies using it will want access to hedging markets to manage their currency exposure and trading risks.
Until there are active hedging markets, such as swaps and futures markets, companies offshore might remain lukewarm about adopting the yuan.
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