Month: October 2012

International Use of Yuan Surging

The global use of the yuan has surged, according to a report by SWIFT, the communication platform among international banks. The People’s Bank of China estimates that overseas importers will be able to save 2-3% of their invoice bills if they pay in yuan.

Trade with the yuan accounted for approximately 10% of China’s total foreign trade in July. Patrick de Courcy, head of markets, Asia-Pacific, for SWIFT said that, “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.”

At the moment, according to the report, there are still obstacles for European companies interested in using the yuan. The obstacles include a show payment process and difficulties with getting approval for payments from authorities, according to a recent survey by the Deutsche Bank.

The Peterson Institute for International Economics has shown that a cross-border trade in yuan is going to triple to $1.03 trillion in three years. The report concurred with other sources that the renminbi has been moving closer to becoming a global reserve currency. There are only three economies that follow the US dollar more closely than they do the yuan – Hong Kong, Vietnam and Mongolia.

China’s Central Bank Adds Dramatic Amount to Banking System

For the second time in two weeks, China’s central bank added an injection of money into the country’s banking system. This spurred stock-market rallies in both Shanghai and Sydney and sent the signal that the government is trying to stimulate the economy.

The cash injection was actually the second-largest that has ever been put into the banking system. The way that this worked is that the People’s Bank of China used what is called a reverse repos, a short-term type of loan to commercial banks, to pour $42.14 billion into the market on Tuesday.

As Dariusz Kowalczyk, a senior economist at Crédit Agricole CIB, explained, “The central bank seems to be scrambling to bring money-market rates down in order to support growth. The large open-market operation shows a pro-growth policy bias and should thus be positive for market sentiment.”

Ironically, the injection came one day after the International Monetary Fund lowered its forecast for China’s economic growth for this year and for 2013. The IMF expects China’s economy to grow 7.8% this year and 8.2% next year, which is down from their estimates of 8% and 8.4%.