Chinese Yuan becomes second-most used current after Dollar

More evidence of the rise of the RMB. I can add to this story by
telling you that major Fortune 500′s have also converted and started
paying suppliers in RMB if they are based in China. This is a new
phenomena as everyone was previously paid in USD. The RMB is only
a few years away from showing the world completely that the Dollar’s
dominance is history.

WSJ
Yuan Passes Euro, Yen to Become Second-Most Used Currency After Dollar
Updated Dec. 3, 2013 3:58 p.m. ET

The Chinese yuan has vaulted ahead of the euro and Japanese yen to
become the second most widely used currency in international-trade
finance, another milestone in China’s bid to open up its currency.
Companies used China’s currency for 8.7% of credit agreements tied
to global trade in October, up from 4.4% a year earlier, according
to financial-services firm Swift, which monitors international currency
flows.

That puts the yuan above the euro and yen—at 6.64% and 1.36%, respectively
—although still well behind the dollar, which backs 81% of trade finance.
While trade credit is but a sliver of the $5.3 trillion-a-day foreign-
exchange market, the rapid adoption of the yuan underscores the rising
importance of the currency. In recent years, the Chinese government has
undertaken efforts to make it easier to convert in and out of yuan, with
an eye toward competing with the U.S. dollar as a global reserve currency.
The rising use of the yuan, also known as renminbi, in international-trade
credits is a sign that Beijing’s efforts to loosen its grip on the currency
are slowly paying off. “Companies are getting more of a comfort zone to trade
in renminbi,” said Debra Lodge, a New York based head of renminbi business
development at HSBC Bank USA NA. “It’s just a natural progression in
the opening up of China.” Statements following the government’s recent Third
Plenum meeting have led many observers to think that Asia’s largest economy
will see more-aggressive foreign-exchange reforms in the near future. Its
central bank announced a blueprint on Monday to facilitate cross-border
investments for businesses and individuals living in Shanghai’s pilot free-
trade zone. However, there are significantbarriers to the yuan’s wider use.
Tight government controls of money flowing in and out of China prevent
foreigners from easily holding yuan assets, and concerns about transparency
have also made many yuan assets unattractive to foreign investors.

“Changing China’s currency is not like turning a battleship; it’s like
turning an aircraft carrier,” said John Rutledge, chief investment officer
at asset manager Safanad SA. “It’ll take decades before the renminbi is
a stable, liquid currency like the dollar.”

Despite the jump in yuan use in trade finance, the currency
holds a relatively small 0.84% share of overall global
payments flows, Swift data show. Most of the trade finance
in China occurs with Hong Kong and Singapore, meaning
the yuan’s growing use is primarily a regional phenomenon
for now.
One explanation for why the yuan’s role in overall payments
lags its role in trade finance is that Chinese companies may
be using trade finance as a way to borrow money more
cheaply offshore. Trade finance includes so-called “letters of
credit,” which are bank-issued guarantees between two
companies that a payment will be made at a future date for a
specific good.
A Chinese company can get around the country’s capital
controls by getting a yuan-denominated letter of credit from
its Hong Kong subsidiary, for instance, and using the
proceeds to get a loan in Hong Kong for a lower interest
rate. China’s benchmark interest rate is 6%, while the offshore rate
is 0.5%. “It’s not the easiest to get money into or out of China, so
savvy Chinese businesses are using letters of credit as a way to borrow
at a lower rate outside of China,” said Alfred Nader, a vice president
at global payments firm Western Union Business Solutions.

If this is the case, the renminbi may not be gaining as much traction
in global trade as the numbers initially suggest. Still, the gradual rise
in yuan use globally is significant. This year, China became one of the
top-10 most traded international currencies for the first time, according
to the latest Bank for International Settlements report in September. Trading
in the Chinese currency has more than tripled in three years, to $120 billion
a day in 2013, the BIS said. By paying in yuan, American and other foreign
companies can get more competitive pricing from their Chinese suppliers.
Last year, China’s central bank said foreign importers could save 2% to 3% on
their invoices if they pay in yuan. For the Chinese supplier, accepting yuan
payments eliminates the fees to convert dollars to yuan, along with any risk
of exchange-rate fluctuations.

3 comments

  1. The NEW BitCoin Wallet

    http://www.youtube.com/watch?v=r5_hFHHJhd4

    Even Ron Paul can put it in his pocket.

  2. Gregory Marsh says:

    WOW…I did not realize that the supply chain in China was using RMB…thanks Dan for posting this!

  3. 9/11wasaninsidejob! says:

    Reading/Federal Judge Accuses Obama of Governance By “Secret Law”/The NDAA gives the authority for the President to arrest and detain as many people as he deems necessary without due process of law. This act allows for mass arrests and deportations to prison camps. When Obama signed this unconstitutional legislation, do you really think the government was never going to act upon this self-granted brand of tyranny?
    Watcha Gonna Do When They Come For You?

    Executive Order 13603 and the Civilian Inmate Labor Program gives the President the authority to incarcerate and conscript individuals into labor brigades in which they will be forced to work in slave labor units. Hitler did this in many of the death camps in which the inmates performed slave labor while they were being systematically starved to death. And where did Hitler get these wonderful ideas? He got the death camp ideas from the government’s treatment of Native Americans in what I call the ultimate Karma slap in the face, resulting from our past bad acts, as a nation.And with the NSA surveillance spy grid, the American version of tyranny will be much more virulent than any other in human history.

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