Yuan displays global potential
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The yuan appears to be rising as a potential global currency with the US dollar trending lower and the euro at risk from Europe's fiscal problems, an industry report said yesterday.
China is gradually moving to allow greater international use of the yuan in trade and finance, including cross-border trade settlement and an offshore market.
"The global financial crisis and subsequent recession threatened to destabilize global currency arrangements, previously dominated by the US dollar and the euro," Virendra Singh, director of Moody's Analytics, said yesterday in a report.
"China is delicately navigating the currency road," he said
China has launched several programs to allow the yuan to go global. The country has expanded yuan settlement of cross-border trade to 20 provinces and municipalities after a trial in Shanghai and four cities in Guangdong Province.
In August, China allowed yuan accumulated overseas to flow back into the country to increase the global appeal of the currency. Yuan accumulated overseas through cross-border trade settlements and central bank swaps are allowed to be channeled back into the Chinese mainland's interbank bond market in a trial program.
Overseas banks are also allowed to issue yuan bonds in the inter-bank market in Shanghai. While banks and companies are allowed to issue yuan bonds in Hong Kong, which allows overseas investors to invest in yuan-backed assets.
The expansion of the domestic debt market and yuan trading outside China are "baby steps" toward making the yuan a medium of global trade and finance, Singh said.
The appreciation of the yuan since July 2005 is also adding to the currency's popularity overseas due to higher investment returns.
The currency has gained 25 percent since July 2005, when China dropped the yuan's peg to the US dollar.
