This entry is dedicated to the China currency, in fact, recently the Chinese yuan is playing a central role on the international stage, and for sure it will gain more attention in the near future.
It is a fact that the ‘people’s currency’ or rmb or yuan, namely the China’s currency is redefining the global economic monetary system. An HSBC forecast projected that by 2015, the yuan will become one of the three most used currencies in global trade, in league with the dollar and euro. The report, issued in April, also foresees a third of China’s cross-border transactions being carried out in yuan.
Coupled this with the recent currency swap to broaden yuan’s global use (China and Britain agreed on Sunday 23 June 2013, on a 200 billion yuan (about $32.59 billion) line of currency swap that is expected to further broaden the Chinese yuan’s use in global trade and investment) no wonder if the attention of operators is focused on the Chinese currency.
The swap would also give an edge to London in its plan to become an offshore center of yuan trading, in face of competition from global financial centers including New York, Paris and Frankfurt.
The People’s Bank of China said in a statement on its website that the agreement will take effect in three years and is aimed at “supporting economic and financial exchanges” and guarding “financial stability”. It will also “provide liquidity to yuan trading in London and facilitate the yuan’s offshore use”.
Bank of England Governor Mervyn King said: “The establishment of a sterling/renminbi swap line will support UK domestic financial stability, in the unlikely event that a generalized shortage of offshore renminbi liquidity emerges, the bank will have the capability to facilitate renminbi liquidity to eligible institutions in the UK.”
Britain is the last in a long line of countries that has signed currency swaps with China in recent years. Since 2008, China has signed currency swaps with 22 countries worldwide, totaling around 1.7 trillion yuan.
The moves are part of a bigger plan to make the yuan a global reserve currency along with China’s rising economic power. Besides signing currency swaps, China has also initiated the Renminbi Qualified Domestic Institutional Investor Program, which allows offshore yuan to flow back and be invested in domestic financial markets.
On the trade front, global transactions denominated in yuan are surging rapidly on the back of a government push. In 2012, cross-border trade settlement in the yuan rose 41 percent to 2.94 trillon yuan, while investment settled in the currency rose by 153 percent to more than 280 billion yuan.
The Chinese yuan is the 13th most-used currency in the world for international payments, according to a February 2013
report
by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). It jumped 6 places from the previous year.
SWIFT reported that the value of payments in yuan soared $171 year-on-year in January, or 24 percent. The yuan has surpassed the Russian rouble and the Danish krona in international transactions. Close behind are the South African rand and the New Zealand dollar. The euro is the most used currency, followed by the US dollar, and then the British pound.
The yuan has been dubbed a ‘hermit currency’, isolating itself from foreign investment and setting its own rules, but is now slowly entering world currency markets.
Degenerating credit quality across the board has prompted asset managers to shy away from the dollar, euro, Japanese yen, British pound, and Swiss franc. And some are turning to the yuan, a currency that 10 years ago was completely off limits to foreign investors.
China has been making a concerted effort to establish itself as an international currency reserve. China already has agreements with Russia, Vietnam, Thailand, and Japan allowing trade to be settled in yuan instead of dollars.
As China launches its global currency, European financial centers are hoping to become Europe’s yuan hub. London, Paris, and Zurich have all made very vocal bids for this title. Many national banks are switching over to the yuan to diversify their reserve currencies, Australia the most recent to join ranks with the world’s second largest economy.
The Reserve Bank of Australia announced in April it will transfer 5 percent of its foreign currency reserves ($2.1 billion) into Chinese bonds, deepening ties with its Pacific neighbor and biggest trade partner, and reflecting a global shift to the yuan.
China and Australia are major trading partners, so an investment in Chinese currency reserves will benefit transactions between the two countries. Now, they can conduct business transactions directly from yuan to Australian dollar, cutting out the middle man, the US dollar or euro.
In the first half of 2012, the use of yuan for trade settlement in London increased by 390 percent year-on-year to 2.2 billion yuan. London also saw a few yuan bond issues in 2012 including one by HSBC bank and another by China Construction Bank.
So, if you have some money and you do not how to put it, maybe you should consider to come to China for a relaxing tour and instead of some souvenirs you can return to your home country with some RMB, maybe if the yuan is going to appreciate further against the other currency, you might had toured China for free.
http://rt.com/business/yuan-china-currency-global-561/
Cristiano Rizzi