China's Yuan No. 3 Global Currency by 2012

Posted by: Frederik Balfour on July 7, 2009


The Chinese yuan could overtake the Japanese yen to become the third most important international currency used in trade by 2012. Or so HSBC economist Qu Hongbin thinks. That’s a far sooner than most people expect, considering China just launched a pilot program allowing the settlement of trade in yuan a few days ago. In a research note sent on July 7, he went so far as to say that as much as 50% of China’s trade could be settled in yuan by 2012. How much money are we talking? A cool two trillion dollars [oops, I mean 13.6 trillion yuan!]That will certainly make for an interesting talking point at the G8 summit starting April 8 in Italy.

His note came a couple of days after China started allowing some overseas exporters and importers to settle their trade with China in yuan. Hong Kong, Macao, and a handful of Southeast Asian countries are part of the pilot scheme designed to make the Chinese currency, also known as the reminmbi, more freely used outside China by enabling them to use it for trading purposes. It’s all part of China’s aim to make the yuan eventually freely convertible, and one day, a major global currency along with the dollar, euro and yen.

In the past several years yuan has become more commonplace in Hong Kong thanks to the influx of Chinese tourists here. Hong Kong cabbies, Starbucks and hotels, as well as luxury purveyors like Louis Vuitton and Christian Dior all readily accept Chinese cash, as few mainland tourists pay with credit cards anyway. Hong Kong banks are also allowed to receive yuan deposits of up to 50,000 yuan per day from retail banking clients.

That’s small change compared to the business they are expected to gain from trade finance generated by cross border yuan settlement. Don’t be surprised to see more mainland bank branches opening overseas to position themselves for this burgeoning business. It also means that China will have less need to hold foreign reserves in dollars, so demand for U.S. treasuries and other securities in the future would be less than otherwise.

We have written about other developments to extend the use of the yuan overseas. HSBC and Bank of East Asia have received permission to raise money through the sale of panda bonds in Hong Kong, and Standard Chartered plans to sell yuan bonds on the mainland. And foreign banks are expected to get permission to list their local subsidiaries on the Shanghai Stock Exchange soon. It’s all part of making the yuan more widely integrated into the global economy. Who knows? Perhaps it won’t be too long before the baccarat tables at Macao are taking bets in yuan too.

Reader Comments

muggeridge

July 7, 2009 3:28 PM

TOUCH OF IRONY:
Another salient point in passing that as Prez Obama and the Russians discuss muslim extremism and terrorism...guess who is confronting that problem today in their streets?
CHINA. Any sympathy?

James Raider

July 7, 2009 9:15 PM

Don’t look to China for a recue from this deepening recession. It’s not up to the challenge. China has created a massive middle class in a single generation, but it has yet to empower it.

http://pacificgatepost.blogspot.com/2009/07/dont-believe-pundits-on-chinas-century.html

The world still waits on the American consumer.

huyu

July 7, 2009 10:13 PM

It appears that Mr Qu is just an impostor addressed up to be an economist from China. The Chinese Yuan cannot be an important international currency; even if it is, we chinese will choose not to talk about it, let alone publicize it. If it ever will become so, the process should happen naturally, and slowly, not like being man-handled by likes of Mr. Qu.

Raju

July 8, 2009 7:00 AM

I have no doubt about it. Even now the Indian traders and other South Asian and South East Asian traders are holding yuan on their hands. Just because it is not convertible right now doesn't mean one can't get hold of it.

Whatever

July 8, 2009 2:16 PM

I am trying to get some gold and yuan but I can't find it anywhere. I just invested in housing 2 years ago and taking a big lost and losing in my mutual funds. I am trying to obtain bullions and yuan anybody knows how?

RMB as regional currency

July 8, 2009 2:17 PM

If you travel to Thailand, Vietnam, Malaysia, Singapore, you will have no trouble if you have the following currencies: USD, EUR, JY, CNY, so RMB is already a regional currency. BTW, I would suggest all countries create new law to ban Islamic, at least China, U.S., Europe, maybe India. All who wear religion mask and commit crime should be executed. In Umuqi, all the Turkic should be sent back Turky by Chinese.

gabe, san diego

July 8, 2009 6:14 PM

if the US, German and Japan economies are in recession for the next 10 years, maybe.......(note the sarcasm in my comment)...

Omen

July 8, 2009 6:29 PM

Yes. But only after float!

Frederik Balfour

July 8, 2009 11:12 PM

Here's a Bloomberg story on how the yuan is replacing the dollar at the Vietnamese border--remember the Vietnamese dong, like the yuan is not a fully convertible currency either.
http://www.bloomberg.com/apps/news?pid=20601080&sid=aqA9QhRSNeqM

Quietly

July 9, 2009 2:57 AM

China is doing it quietly so as not to create a panic run on the dollar. If the dollar crashes it'll hurt China almost as much as it hurts the US, as they hold $2 Trillion in reserves. But I have no doubt Yuan will become more and more widely traded in the next couple of years.

Paul

July 9, 2009 5:35 AM

2012 may be a bit too soon. But whether it is 2012 or 2022, it's only a matter of time. China is already one of the world's 2 largerest trading economies (imports and exports) and by most estimates, China's economy is poised to surpass that of Japan in no more than 3 years and the US within the next 15-20 years. What's so surprising about the Yuan becoming one of the top 3 currencies?

DanTe

July 9, 2009 10:40 AM

Yep. The yuan will become a dominant currency. Just like the dollar. Oh wait, the yuan is PEGGED to the Dollar. So who cares? (Note: the yuan will continue to be pegged to the dollar as long as China needs to use it as a competitive edge to export to its only buyer - the U.S.)

Bob

July 9, 2009 11:34 AM

Yuan is NOT PEGGED to the Dollar. It is in a managed float against the dollar, which allowed it to slowly but steadily appreciated against the Dollar. It is up againsted the Dollar by some 25% in last 3-4 years. And the Yuan appreciation will be allowed to continue steadily as US consumer market become gradualy less important for China's GDP. That's why dispite the inconvenience, business that trade with China wants to hold on to the RMB as much as they can.

Jonn

July 9, 2009 11:45 AM

Renminbi should be the No.1 globel currency in the future.

Pegged

July 9, 2009 12:38 PM

Actually DanTe, the Yuan is pegged to a basket of currencies that include the Dollar, Euro, Pound and Yen. That's why it fluctuates. The Hong Kong dollar is the one that is pegged directly to the dollar and is always fixed.

I'm sure at some point when they are good and ready the Chinese will unpeg the Yuan and let it float freely. But they need to get their internal consumption up to a more sustainable level first. I'm guessing that probably won't happen before 2015. I think they should do it sooner. A stronger Yuan will help fuel internal consumption as it'll make the average Chinese consumer richer.

Henry L.

July 9, 2009 3:15 PM

@Dante. US is the only buyer?? with what??? there you go again opening your big mouth.

josh

July 9, 2009 6:13 PM

Nothing is certain and nothing is impossible. Just look back 10 years, where was RMB sitting? And now…..

Jim Tressor

July 15, 2009 10:06 AM

Here is an interesting article on why the Chinese would have to sacrifice the Yuan in the short run in order to make it globablly competitive. Interesting stuff: http://www.mindreign.com/en/mindshare/Global-Economics/Yuan-Currency-3f/sl35291137bp313cpp10pn1.html

Chink

July 18, 2009 1:29 AM

No way . Uncle Sam will see to that. Like upseting the entire world order. Maybe cause the end of the world if it needs to.

white racist

July 26, 2009 2:18 PM

balfour,

many of my comments have been deleted or denied posting on your "eye on asia" blog because it doesn't submit to your anti-china bashing and yet the comment from "chink" below posted July 18, 2009 01:29 AM is allowed.

i guess any comments against the white power structure is allowed but racist language against asians are a.o.k right. why are you an internet comment board nazi who decided which post to delete and which not to.

FROM BALFOUR: here is the comment White Racist is referring to:

"No way . Uncle Sam will see to that. Like upseting the entire world order. Maybe cause the end of the world if it needs to."

We don't edit or censor comments on the basis of the user name, only the content of the blog, but perhaps we should, in future, amend the user names.

Ashish

July 28, 2009 10:48 PM

Can any one please tell me that how many currencies are there which includes in currency basket...

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