Yuan's role in trading is set for expansion
By Feng Jianmin |
01:01 UTC+8 January 12, 2012
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Print Edition
Print Edition
China will expand the yuan's use in cross-border trade and investment as the country seeks to guard itself against global economic uncertainties and financial risks, a senior central bank official said yesterday.
"China's imports and exports are facing new challenges amid sluggish global economic recovery and a rise of trade protectionism," Li Dongrong, assistant governor of the People's Bank of China said at a conference in Beijing. "The People's Bank of China will team up with related financial bodies to create a sound financial environment for the healthy growth of trading."
Li said cross-border trade yuan settlement will help China's import and export companies prevent exchange rate risks, save forex costs and increase competitiveness, and he estimated that the transaction costs for yuan settlement would be 2 to 3 percent lower on average than settlement in foreign currencies.
"Conducting cross-border operations in the yuan reflect the real needs of economic activities, and will solidly benefit trading firms and financial institutions," Li said.
He encouraged domestic banks to offer a basket of financial solutions to help companies go abroad.
It is the second time in a week that the central bank has pledged to expand cross-border use of the yuan.
Yuan bonds
On Sunday, it said cross-border trade yuan settlement would be rolled out throughout China this year, and the authorities would encourage more mainland companies to issue yuan-denominated bonds in Hong Kong.
Issuance of yuan-denominated bonds was first allowed in 2007 and China introduced cross-border trade yuan settlement in 2009 to step up internationalization of the currency. The trade yuan settlement was expanded to 20 provinces and municipalities in 2010.
Last year, Chinese authorities sought to further open up the mainland market by allowing yuan raised offshore to directly invest in mainland industrial activities and the financial market.
So far, Hong Kong has approved a first batch of 15 Renminbi Qualified Foreign Institutional Investors products which are allowed to invest in the mainland's stock and bond markets.
The first products are expected to be on sale this week.
"In recent years, breakouts of global financial crisis and expanding of sovereign debt crisis have highlighted shortcomings and systematic risks of global currency systems," Li said. "This has provided an opportunity for the yuan to go abroad."
Li said 181 countries and regions had established cross-border yuan operations with Chinese mainland so far, and banks had settled an accumulative 2.58 trillion yuan under current account by the end of 2011. Banks handled 20.2 billion yuan of investment from Chinese mainland to abroad, and 90.7 billion from abroad to the mainland last year.
Economists said the internationalization of the yuan had made great progress, but China's tight control of the mainland's capital market would be the next bottleneck.
"In the past two years, the proportion of trade yuan settlement has jumped from zero to nearly 10 percent, yuan deposits in offshore markets have increased from 60 billion yuan to 600 billion yuan, and the size of fixed-interest products has risen to around 200 billion," Ma Jun, a Deutsche Bank economist, said. "But the extent of the yuan's internationalization will be very limited if the mainland's capital market is not open."
He said growth of trade settlement was able to lift offshore yuan deposits to nearly 2.4 trillion yuan, less than 10 percent the total potential of yuan's internationalization if China opens up its capital market.
"China's imports and exports are facing new challenges amid sluggish global economic recovery and a rise of trade protectionism," Li Dongrong, assistant governor of the People's Bank of China said at a conference in Beijing. "The People's Bank of China will team up with related financial bodies to create a sound financial environment for the healthy growth of trading."
Li said cross-border trade yuan settlement will help China's import and export companies prevent exchange rate risks, save forex costs and increase competitiveness, and he estimated that the transaction costs for yuan settlement would be 2 to 3 percent lower on average than settlement in foreign currencies.
"Conducting cross-border operations in the yuan reflect the real needs of economic activities, and will solidly benefit trading firms and financial institutions," Li said.
He encouraged domestic banks to offer a basket of financial solutions to help companies go abroad.
It is the second time in a week that the central bank has pledged to expand cross-border use of the yuan.
Yuan bonds
On Sunday, it said cross-border trade yuan settlement would be rolled out throughout China this year, and the authorities would encourage more mainland companies to issue yuan-denominated bonds in Hong Kong.
Issuance of yuan-denominated bonds was first allowed in 2007 and China introduced cross-border trade yuan settlement in 2009 to step up internationalization of the currency. The trade yuan settlement was expanded to 20 provinces and municipalities in 2010.
Last year, Chinese authorities sought to further open up the mainland market by allowing yuan raised offshore to directly invest in mainland industrial activities and the financial market.
So far, Hong Kong has approved a first batch of 15 Renminbi Qualified Foreign Institutional Investors products which are allowed to invest in the mainland's stock and bond markets.
The first products are expected to be on sale this week.
"In recent years, breakouts of global financial crisis and expanding of sovereign debt crisis have highlighted shortcomings and systematic risks of global currency systems," Li said. "This has provided an opportunity for the yuan to go abroad."
Li said 181 countries and regions had established cross-border yuan operations with Chinese mainland so far, and banks had settled an accumulative 2.58 trillion yuan under current account by the end of 2011. Banks handled 20.2 billion yuan of investment from Chinese mainland to abroad, and 90.7 billion from abroad to the mainland last year.
Economists said the internationalization of the yuan had made great progress, but China's tight control of the mainland's capital market would be the next bottleneck.
"In the past two years, the proportion of trade yuan settlement has jumped from zero to nearly 10 percent, yuan deposits in offshore markets have increased from 60 billion yuan to 600 billion yuan, and the size of fixed-interest products has risen to around 200 billion," Ma Jun, a Deutsche Bank economist, said. "But the extent of the yuan's internationalization will be very limited if the mainland's capital market is not open."
He said growth of trade settlement was able to lift offshore yuan deposits to nearly 2.4 trillion yuan, less than 10 percent the total potential of yuan's internationalization if China opens up its capital market.
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