Thursday, 20 January 2011

China to cut reliance on US dollar

Yuan to Trade With Australian, Singapore Dollars

China will allow direct trading of the yuan against the Australian and Singaporean dollars as the world’s largest exporter strives to reduce the role of the greenback in trade, Standard Chartered Plc says.

Spot trading of the yuan versus Malaysia’s ringgit started in August and Russia’s Micex exchange has traded the yuan against the ruble since Dec. 16. HSBC Holdings Plc plans to offer spot trading between the yuan and the Turkish lira in March, according to a Jan. 11 statement.

“The yuan internationalization process is clearly accelerating and I would expect this to continue, particularly in Asia,” Callum Henderson, global head of currency research in Singapore at Standard Chartered, the U.K. bank that generates more than three quarters of its earnings from Asia, said in an e-mail interview yesterday. “We expect more countries, such as Singapore and Australia, to see this kind of bilateral currency agreement in due course.”

China is allowing greater use of the yuan outside its borders as it seeks to reduce its reliance on the dollar, particularly in trade transactions with neighboring countries. Asian exchanges that trade palm oil derivatives and gold are already starting to accept Chinese currency for payment and collateral. The central bank in Beijing is considering allowing yuan held outside of mainland China to be used for inward investment, Zhang Jianjun, president of the Shenzhen arm of the regulator said Jan. 18.
Extending Trading

The ringgit weakened 0.3 percent to 0.4648 per yuan by 5:58 p.m. in Kuala Lumpur, according to prices compiled by Bloomberg. The ruble lost 0.3 percent to 45.55 per 10 yuan by the end of the one hour trading session in Moscow, which Micex chief Ruben Aganbegyan said last month would be extended should volumes increase.

China is Malaysia’s largest trading partner after Singapore and is tied with the Netherlands as Russia’s biggest, overtaking Germany last year. China became the largest trading partner of Australia, the world’s biggest iron-ore and coal exporter, in 2007, according to trade ministry figures. It is Singapore’s third-largest trading partner after Malaysia and the European Union.

Citigroup Inc. in Moscow is about to start offering yuan- ruble trading to its clients, according to Head of Foreign Exchange Trading, Denis Korshilov. “Currently it’s 95 percent customer orders, importers mostly,” he said by e-mail yesterday.

Dollar Settlement Reduction

The expansion of direct yuan trading outside of China will remain mainly for “trade settlement” in the medium-term, Standard Chartered’s Henderson said.

Should more countries introduce direct trading of the yuan and companies that trade with China start to utilize it, “the yuan internationalization process may be part of a more general reduction in dollar settlement,” he said.

President Barack Obama has criticized what the U.S. sees as China’s policy of keeping the yuan weak during Chinese President Hu Jintao’s visit to the country this week. The yuan is “undervalued” because of Chinese intervention, and contributes to the U.S.’s record $28 billion trade deficit with the Asian nation, Obama said after a meeting between the two leaders in Washington yesterday.

Chinese Premier Wen Jiabao said in March he was “worried” about holding assets denominated in the greenback.

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