Saturday, October 24, 2009
China to use ASEAN meet to make Yuan an international currency
China is set to use the ASEAN meet to sell the idea of making the Yuan an international currency. It is using the sense of uncertainty over the US dollar to sell a new dream of enlarged regional trade, financial support from Beijing and reduced dependence on the volatile dollar.
China has also offered to contribute nearly one-third of the $120 billion economic stimulus package being worked out by ASEAN with the stated purpose of helping member-nations reduce their dependence on the International Monetary Fund. Japan offered to cough up a similar amount so that its influence in the region is not diminished. A senior Chinese official has said that the China-ASEAN Free Trade Area agreement, which will come into being on January 1 of 2010, will result in wide scale use of the renminbi or Yuan as the regional currency.
"The upcoming CAFTA, which boasts the largest population among all the world's FTAs and allows zero-tariff on 90% of products traded between China and ASEAN, will quicken the process of RMB rationalization, " the official Xinhua news agency quoted Xu Ningning, executive secretary general of China-ASEAN Business Council, as saying.
China is trying to persuade ASEAN nations to enter into bilateral agreements for trade settlements in Yuan. At present, it has sealed such agreements with two ASEAN members, Laos and Vietnam. China recently launched the first-ever international bond in RMB in the Hong Kong market with significant success. It is pushing some Asian nations like Indonesia and Pakistan to transact business in RMB by offering them easy loans.
Thailand's commerce minister Alongkorn Ponlaboot has indicated Bangkok is seriously looking at the option of using the Yuan as a medium of exchange. The Yuan could help reduce risks faced by the ASEAN countries in using the U.S. dollar, Xinhua quoted him, as saying at the 6th China-ASEAN Expo in Nanning in China's Guangxi Zhuang Autonomous Region. China's purpose in trying to make the Yuan an international
currency is manifold. Wider use of the Chinese currency in trade settlements will give a boost to its exports. It will also enhance Beijing's prestige in world markets and help it deflate criticism from the United States and other western countries that it was keeping the Yuan under strict official control.
At present, only 10 per cent of the China-ASEAN bilateral trades involve settlements in the Chinese currency. Most of it takes place in border trades with other countries. Beijing is closely watching other currency trends like the use of the Thai Baht, Vietnamese Dong and the US dollar that are in circulation in places like Cambodia and trying to push the case of the Yuan.
China launched a pilot programs last December by allowing selected areas to trade in Yuan with ASEAN nations. The areas are the province of Guangdong and the Yangtze River Delta (which includes Shanghai), Hong Kong and Macao. Exporters in Guangxi and Yunnan Province in southwestern China to settle trade in yuan with ASEAN. This was followed by another program, to settle cross-border trade deal in yuan in five cities including Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan.
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