China’s yuan surpasses euro as #2 currency in trade finance

yuan dollar euro

China’s yuan currency overtook the euro in October, becoming the second-most used currency in trade finance, global transaction services organization SWIFT said on Tuesday.

The market share of yuan usage in trade finance, or Letters of Credit and Collection, grew to 8.66 percent in October 2013. That improved from 1.89 percent in January 2012.

The yuan, also known as the renminbi, now ranks behind the U.S. dollar, which remains the leading currency with a share of 81.08 percent…

Yup. A long way to go to be competitive. Though, anyone who thinks the RMB will fall by the wayside anytime soon – is deluded.

The top five countries using the yuan for trade finance in October were China, Hong Kong, Singapore, Germany and Australia, SWIFT said in a statement.

“The RMB is clearly a top currency for trade finance globally and even more so in Asia,” Franck de Praetere, SWIFT’s Asia Pacific head of payments and trade markets said…

The world’s second-largest economy is accelerating the pace of financial reform to promote its currency to international players beyond Hong Kong. China aims to lift the yuan’s global clout and reduce its reliance on the U.S. dollar.

Even though the dimwits in Congress still run their trick bag on the American public about Chinese currency being manipulated as cheap – to steal business – they know nothing about ForEx or global biz. It’s been a few years since the PBOC stopped pegging the RMB to the US dollar and it’s only gone in one direction since. Up, up. About a third of a percent, yesterday.

The Western moneyboys are jostling each other in the peloton to get to the front on converting yuan to euros and dollars – and vice versa. The Swiss and the Brits mostly in the lead. This month.

China buying oil from Iran — paying with RMB

China is buying crude oil from Iran using its currency the yuan, an Iranian diplomat has said…

The Financial Times cited unidentified industry executives in Beijing as saying most of the oil that goes from Iran to China is handled by the Unipec trading arm of Sinopec China’s second-largest oil company, and through another trading company called Zhuhai Zhenrong.

Fayyaz also confirmed that Iran was spending the currency on goods and services imported from China…

The trade is worth as much as $20bn-$30bn annually according to industry estimates, but a share of it is in barter form. Zhuhai Zhenrong, for example, pays Iran for its oil by providing services such as drilling, these people add.

“The global financial crisis accelerated the shift from the west to the east,” said the chief executive of one bank in Dubai. “Such measures [as the U.S. sanctions against Iran] will now enhance the acceptability of the renminbi as a transaction currency…”

The renminbi purchases began some months ago. Initially the non-barter portion of the transactions were settled in Beijing through renminbi accounts but now, as a result of U.S. pressure, domestic banks such as Bank of China have stopped dealing with Iran, the oil executives and bankers said.

Instead, much of the money is transferred to Tehran through Russian banks, which take large commissions on the transactions…

Beijing has been trying to get its trading partners to use the renminbi, in effect transferring the exchange rate risk to its counterparties, since the price of crude is set in U.S. dollars. It also frees Beijing of the need to hold as many dollars in its reserves.

Iran sells 21 percent of its crude oil exports to China, making Beijing crucial to Tehran’s ability to withstand unilateral U.S. sanctions.

This caught my eye because I have always felt that part of the Bush/Cheney reasoning behind the invasion of Iraq was Saddam Hussein’s decision to walk away from the PetroDollar.

The American dollar has been the dominant currency for oil trades for decades. Only the gradual political split away from the dominance of Western banks and Anglo-American corporations offered an opportunity for countries selling their raw materials to settle accounts in a currency other than the dollar. In Iraq’s case – they decided on the Euro. We know what followed.

China’s RMB is well on the way to becoming an international currency and it strikes me as some sort of convoluted but appropriate response that Obama’s continued dedication to Israel’s policies in Palestine, obedient application of sanctions on Iran – are laying the groundwork for speeding up the process of acceptance of the yuan.

America’s Renminbi Fixation

For seven years, the United States has allowed its fixation on the renminbi’s exchange rate to deflect attention from far more important issues in its economic relationship with China. The upcoming Strategic and Economic Dialogue between the US and China is an excellent opportunity to examine – and rethink – America’s priorities.

Since 2005, the US Congress has repeatedly flirted with legislation aimed at defending hard-pressed American workers from the presumed threat of a cheap Chinese currency. Bipartisan support for such a measure surfaced when Senators Charles Schumer (a liberal Democrat from New York) and Lindsey Graham (a conservative Republican from South Carolina) introduced the first Chinese currency bill.

The argument for legislative action is tantalizingly simple: the US merchandise trade deficit has averaged a record 4.4% of GDP since 2005, with China accounting for fully 35% of the shortfall, supposedly owing to its currency manipulation. The Chinese, insists a broad coalition of politicians, business leaders, and academic economists, must revalue or face sanctions.

This reasoning resonates with the US public…

“Enough is enough,” President Barack Obama replied, when queried on the renminbi in the aftermath of his last meeting with Chinese President Hu Jintao. Obama’s presumptive Republican challenger, Mitt Romney, has promised to declare China guilty of currency manipulation the day he takes office.

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China gives currency more freedom with new reform

China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalizes its nascent financial markets. The People’s Bank of China said it would allow the yuan to rise or fall 1 percent from a mid-point every day, effective today, compared with its previous 0.5 percent limit.

The timing of the move underlines Beijing’s belief that the yuan is near its equilibrium level, and that China’s economy, although cooling, is sturdy enough to handle important, long-promised, structural reforms…

A slowing world economy that has pared investor expectations of a steadily rising yuan likely also gave Beijing the confidence to proceed, knowing that a larger band would not necessarily lead to a stronger currency.

“The central bank chose a good time window to enlarge the trading band. The market’s expectation for a stronger yuan is weakening,” said Dong Xian’an, chief economist at Peking First Advisory in Beijing. “The move partially clears away doubts on whether China can manage a soft landing in its economy, and makes clear China’s reform road map.”

Investors have widely expected China to widen the yuan’s trading band this year, thanks to repeated hints from Beijing that the change would take China one step closer to its financial goal: a basically convertible yuan by 2015.

Having a currency that trades with fewer restrictions also enhances Shanghai’s status as a financial center. China envisions turning the city into a global banking hub by 2020…

Ultimately, the government wants the yuan to rival the dollar as a global reserve currency, and to this end it has gradually allowed the currency to trade more freely.

I’ve watched hour-by-hour discussion of this change over the weekend. The discussion only becomes more interesting as the markets opened Monday morning in Asia a full 24 hours before the United States.

Most analysts – as the article notes – have seen this coming for several months. Regardless of the political claptrap from Obama or Romney. Conservative financial sources like those who gravitate to and around CNBC had started discussion early last week on the how-and-when of Chinese banks issuing bonds rather than relying exclusively on China’s central bank. And The City of London already announced days ago they plan to begin trading actively in the RMB as soon as practical.

Watch Bloomberg TV sometime, folks. Especially Surveillance Midday with Tom Keene – or listen to the companion radio show in the morning. You can stream these from’s several websites, from iTunes, on your computer or iPhone or iPad. Better news shows than the crap sold as media and entertainment, anyway.

China will begin offering RMB credits for the BRICs

China is planning to extend renminbi loans to other major emerging BRIC countries in another step toward the expansion of the yuan’s role in foreign exchange, the Financial Times reports.

The China Development Bank (CDB) will sign a memorandum of understanding at a meeting with its Brics counterparts – Russia, South Africa, Brazil and India – in New Delhi on March 29…Under the agreement CDB, which lends mainly in dollars overseas, will make renminbi loans available, while the other Brics nations’ development banks will also extend loans denominated in their respective currencies, the FT said in an article published on its website.

The renminbi is the official currency of China and its primary unit is the yuan. Of the six largest economies in the world, China is the only one whose currency does not have reserve status.

The initiative aims to boost trade between the five Brics nations and promote use of the renminbi, rather than the US dollar, for international trade and cross-border lending, the FT said… Makes sense to me.

BNDES, Brazil’s development bank, and South Africa’s finance ministry were cited by the FT as saying they expected an agreement to be signed at the New Delhi meeting which would include the lending pledge, with details to be ironed out during a summit.

Other signatories would include Russia’s Vnesheconombank, the Export-Import Bank of India and the Development Bank of Southern Africa, according to the article.

Over the next decade the word of this will gradually be included in monthly briefing notes to members of the US Congress. I imagine that sooner or later another aspect of global commerce and monetary policy will sink in. Slowly.

Probably bring them up to about 1929.

Appreciation in China’s currency unnoticed – especially by politicians

With little fanfare, China’s currency has appreciated significantly in the last year and a half, leading many economists to question whether the exchange rate is still the most important economic issue for the United States to press with China’s leaders.

The rise of the renminbi — up 12 percent since June 2010 on an inflation-adjusted basis and 40 percent since 2005 — has helped American companies by effectively reducing the cost of their products in China. In the last two years, American exports to China have risen sharply…

In his Oval Office meeting on Tuesday with Xi Jinping, China’s vice president and likely next leader, President Obama discussed the currency as one of the trade practices that concerned the United States. That meeting — and tough public comments by Vice President Joseph R. Biden Jr. — continued a three-year campaign by the administration to convince Chinese leaders that a stronger currency is in their interest…

Administration officials and members of Congress have chosen not to emphasize the appreciation publicly, partly to keep pressure on China. Widespread discussion of the change could reduce support in Congress for a bill that would impose sanctions on Chinese imports to the United States and that Beijing strongly opposes…Passing legislation based on a lie doesn’t upset Congress or the White House at all.

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London is to develop as Chinese RMB trading hub

Daylife/Reuters Pictures used by permission

China and the UK are to develop an offshore trading hub for the yuan based in London.

UK Chancellor George Osborne confirmed the agreement after meeting with Chinese vice-premier Wang Qishan in the UK. “We agreed to collaborate on the development of renminbi-denominated financial products and services in London,” he said…

As the yuan has slowly been appreciating and becoming more flexible, Hong Kong has been the only place that China has allowed as a centre for deposits in the Chinese currency. London is the largest foreign-exchange trading centre in the world.

Mr Osborne said that the UK represented an “attractive investment opportunity for Chinese investors and a gateway for further investment in Europe”…

China and the UK reaffirmed their commitment to the target of doubling trade to $100 billion by 2015.

One of the areas where American commerce has been progressing faster than American government — well, Congress, anyway — is growing our export business to China as they expand domestic consumption. China’s growing middle-class, entrepreneurs, small-businesses need goodies to grow, some of which the United States can provide.

Forex investing follows along with greater trade exchanges. Of course, it might take another decade and a different Congress before the United States government figures out what’s happening. And China gains more confidence in American banks.

Hu Jintao questions dollar dominance

The Chinese president has resisted US arguments about why China should let its currency strengthen, saying the dollar-based international currency system is a “product of the past”.

However, Hu Jintao admitted that it would take a long time to make China’s yuan (RMB) a world currency.

“China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development,” he told two US newspapers in a written interview ahead of his visit to the US next week. “But making the RMB an international currency will be a fairly long process…”

Hu said arguments that allowing the yuan to appreciate would curb inflation are too simplistic, adding that China is fighting inflation with a range of policies including interest-rate increases.

While inflation in China hit a 28-month high in November, Hu told the Wall Street Journal and the Washington Post that prices were “on the whole moderate and controllable…We have the confidence, conditions and ability to stabilise the overall price level,” he said…

On other issues, Hu struck an upbeat tone about ties with the US. “We should abandon the zero-sum Cold War mentality,” he said and “respect each other’s choice of development path.”

The president suggested co-operation with the US in areas like new energy sources, clean energy, infrastructure development, aviation and space…

The Chinese leader, who is expected to step down as president and general secretary of China’s Communist Party in 2012, arrives on Wednesday in Washington for his first and last state visit.

I chose this article from Al Jazeera deliberately to offer folks a middle-of-the-road view from outside the United States and most Western yes-men. Certainly, the content of the interview isn’t altered; but, presentation is still linked to American domestic politics – and that includes foreign policy.

The Washington Post article is somewhat neutral. The NY Times reflects their policy of being as hawkish as any Cold Warrior when it comes to economic and commercial challenges to the United States.