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Global yuan trade settlement continues to rise (2)

By Wang Xiaotian  (China Daily)

13:24, October 10, 2012

Wang Yongli, vice-president of Bank of China Ltd, China's fourth-largest commercial lender by market capitalization, said the key to floating the yuan globally lies in whether the central bank will allow a larger scale of the currency's backflow.

Wang said that use of the yuan worldwide has been obviously increasing, but that insufficient backflow has hampered its prospects as an international currency.

"The government should put the majority of yuan clearance on the mainland instead of offshore markets," he said.

He added that an efficient clearance system is essential for the internationalization process of the currency, and that the government should encourage inter-bank bookkeeping clearance instead of cash clearance to further promote the global use of the currency.

But while trade settlement in the yuan appears to be increasing, overall yields of the Dim Sum bond market tightened marginally in the third quarter. The yield tightening was less than for Asian dollar credit indices such as the JP Morgan Asia Credit Index.

The adverse demand-supply situation has caused the Dim Sum market to underperform the Asian dollar bond markets, said Standard Chartered, and the lack of strong yuan appreciation means the situation is likely to continue for a while.

"The stagnation in yuan deposit growth in Hong Kong has clearly weakened demand for Dim Sum bonds, even while issuance has soared," it said.

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