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Friday, 20 February 2009
Beijing tests the waters to make yuan a liquid, convertible currency
While cynics scoff at the idea that the yuan could someday become a regional or global currency, Beijing’s efforts to push loans and trade in yuan in Asia suggest it is taking the first, albeit tiny, step in that direction.
Beijing tests the waters to make yuan a liquid, convertible currency
Reuters in Singapore 12 February 2009
While cynics scoff at the idea that the yuan could someday become a regional or global currency, Beijing’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.
In addition, 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.
In December last year, China said the yuan could be used for the settlement of trade between the industrial areas of the Pearl and Yangtze river deltas and Hong Kong and Macau.
Members of the Association of Southeast Asian Nations (Asean) would be permitted to use yuan in their trade with Guangxi and Yunnan provinces.
“This is a fascinating development and clearly part of Beijing’s ambition to regionalise the yuan and help local trading companies,” said Stephen Green, the China research head at Standard Chartered Bank.
The mainland has offered cheap loans to foreign importers that buy Chinese goods. Most of these borrowers are now compelled to use the yuan to settle their loans.
Beijing 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,” said Mei Xinyu, a researcher at the Ministry of Commerce.
Beijing has said these efforts are geared to promoting the country’s international trade and helping mainland 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.
Wu Xiaoling, a parliamentarian and former central bank deputy governor, wrote in a recent edition of Caijing financial magazine that for now, there is no substitute for the US 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,” she wrote.
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.
Tai Hui, the Southeast Asia research head at Standard Chartered, said that even in the trade agreement between Asean and Guangxi and Yunnan provinces, use of the yuan would be extremely limited.
“I do see this as an interesting development and yet I would see this as a long-term development, rather than an explosion of usage of yuan as a trading currency in Asean,” he said.
1 comment:
Beijing tests the waters to make yuan a liquid, convertible currency
Reuters in Singapore
12 February 2009
While cynics scoff at the idea that the yuan could someday become a regional or global currency, Beijing’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.
In addition, 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.
In December last year, China said the yuan could be used for the settlement of trade between the industrial areas of the Pearl and Yangtze river deltas and Hong Kong and Macau.
Members of the Association of Southeast Asian Nations (Asean) would be permitted to use yuan in their trade with Guangxi and Yunnan provinces.
“This is a fascinating development and clearly part of Beijing’s ambition to regionalise the yuan and help local trading companies,” said Stephen Green, the China research head at Standard Chartered Bank.
The mainland has offered cheap loans to foreign importers that buy Chinese goods. Most of these borrowers are now compelled to use the yuan to settle their loans.
Beijing 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,” said Mei Xinyu, a researcher at the Ministry of Commerce.
Beijing has said these efforts are geared to promoting the country’s international trade and helping mainland 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.
Wu Xiaoling, a parliamentarian and former central bank deputy governor, wrote in a recent edition of Caijing financial magazine that for now, there is no substitute for the US 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,” she wrote.
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.
Tai Hui, the Southeast Asia research head at Standard Chartered, said that even in the trade agreement between Asean and Guangxi and Yunnan provinces, use of the yuan would be extremely limited.
“I do see this as an interesting development and yet I would see this as a long-term development, rather than an explosion of usage of yuan as a trading currency in Asean,” he said.
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