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English>>China Business

Clearing the path for global currency

By Diao Ying  (China Daily)

13:18, October 31, 2012

A more efficient system should be in place to facilitate the increasingly wide use of the yuan in global transactions, according to a report by SWIFT, the communication platform among international banks.

Global use of the currency has surged. In August the renminbi rose to 14th in the table of payment currencies, up from 35th in October 2010, according to a report by the Society for Worldwide Interbank Financial Telecommunication.

Most other currencies remained flat or moved marginally during that period.

Trade finance is the primary driver behind the rise. Paying in yuan means domestic companies will get lower borrowing costs and reduce foreign exchange risks.

In addition, the report said, some Chinese buyers and suppliers prefer the currency.

The People's Bank of China estimates that overseas importers can save 2 to 3 percent on their invoice bills by paying in yuan.

"Currency appreciation or depreciation might be irrelevant", in the rise in the yuan's international use, the report said.

Yuan-denominated trade accounted for about 10 percent of China's total foreign trade in July, the report said.

In the meantime, the currency's use has moved into a new stage, said Patrick de Courcy, head of markets, Asia-Pacific, for the organization.

He said the path of the yuan's further internationalization will involve three phases: trade finance, investment and as a reserve currency.

However, the increasing use of the yuan poses challenges. Banks said that offshore yuan clearing is appropriate, the report said, but in the long term, improvement is needed.

"The existing arrangement for offshore renminbi clearing has served the industry well, to date. In the medium to long term, however, it is important that we have an enhanced platform," De Courcy said.

The primary goal of a future yuan clearing system should support the need for seamless routing of the yuan within China and around the world. A typical payment in US dollars can be settled within seconds, while settling in yuan takes much longer.

Offshore yuan clearing can take two routes. The first sees the transaction go through either the designated clearing bank, Bank of China in Hong Kong. The second route goes directly to a yuan agent bank on the mainland.

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