China’s yuan seen as ‘new choice’ for RCEP, may match pound and yen in 10 years, report says
- Bank of China report says more than 90 per cent of domestic and foreign firms believe ‘strongly’ using yuan could steady trade within Asia-Pacific region
- Lu Lei, deputy director of the State Administration of Foreign Exchange, also pledged to create more application scenarios for the yuan during China’s opening-up
China should further capture growing interests in using the yuan through regional trade pact and offshore trading centres, according to a Bank of China report, as Beijing presses on to increase global use for the currency in an “orderly” manner.
Members of the 15-nation Regional Comprehensive Economic Partnership (RCEP) accounted for 18.9 per cent of yuan-denominated remittances in China last year, compared with 15.9 per cent in 2021 and just 7.1 per cent in 2020, according to the bank’s 2022 yuan internationalisation white paper, released on Tuesday.
More than 90 per cent of domestic and foreign companies said they believe “strongly” using the yuan in cross-border payments could steady in the Asia-Pacific region when the liquidity among major currencies takes a hit, according to the state-owned bank’s survey.
In 2022 … the attractiveness of yuan financing to overseas market players rose
“In 2022, the US Federal Reserve continued to raise interest rates, the liquidity of the US dollar tightened, and the attractiveness of yuan financing to overseas market players rose,” the report said.
“78.6 per cent of overseas industrial and commercial enterprises interviewed said that when the liquidity of international currencies such as the US dollar and the euro is relatively tight, they would choose yuan as a new choice of financing currency, and this ratio has increased by 7.4 percentage points compared with the survey results in 2021.”
The survey, conducted between January 30 and February 27, drew data and feedback from 3,600 domestic and foreign industrial and commercial enterprises, as well as 82 overseas financial institutions. It also used data from the global financial messaging system Swift.
Almost 80 per cent also said the yuan will enjoy an international status that is no weaker than the British pound and Japanese yen in 10 years, although the 79.8 per cent figure was slightly lower than 81 per cent in 2021 and 80.2 per cent in 2020.
Which 8 nations are using China’s yuan more, and how will it affect US dollar?
Acknowledging the growth of yuan trading in Russia last year, the Bank of China saw potential in offshore yuan trading in Africa, highlighting that Chinese financial institutions in Zambia, South Africa, Angora, Djibouti and Mauritius can consider offering yuan deposit, lending and remittance services.
Among the offshore yuan centres in East Asia, outstanding yuan deposits in South Korea declined by 4.8 per cent in 2022 to US$1.78 billion from a year ago, the Bank of China said.
There was, though, an increase of 14.4 per cent in the total amount of yuan denominated remittances and payments in South Korea compared to 2021, the report added.
The world’s second-largest economy and an export powerhouse continues to keep a tight control on cross-border fund flows and manages the yuan exchange rate.
Lu Lei, deputy director of the State Administration of Foreign Exchange, pledged to create more application scenarios during the country’s opening-up and also vowed to boost its use in regional pacts.
He said that the stability of China’s economy and the prudence of its monetary policy are important fundamental factors that have been driving the “orderly” internationalisation of the yuan.
“On the premise of effectively preventing and controlling risks, we should continue to improve the facilitation level for foreign investors to invest in the domestic financial market, smooth the channels for the trading of yuan, and increase the willingness of foreign entities to hold the yuan,” Lu wrote in the latest issue of Tsinghua Financial Review published this week.
