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Friday, September 23, 2016, 17:59

China's yuan heads for global currency status

By Xinhua

BEIJING - The founding of the first renminbi (RMB) clearing bank in the United States and the yuan's imminent formal inclusion in an elite reserve currency basket are the RMB's latest victories on the way to becoming a global currency.

China's central bank said Wednesday it has designated Bank of China's New York branch to provide yuan clearing services in the United States, the first time China has set up an RMB clearing bank in the country.

It joined a list of offshore yuan clearing banks in Hong Kong, London, Singapore, Toronto and other overseas cities, which are expected to promote international use of the currency.

The move came days ahead of the RMB's inclusion in the Special Drawing Rights (SDR) currency basket by the International Monetary Fund (IMF), which will become effective starting Oct 1 and make the yuan one of the five reserve currencies fully endorsed by the 189-member organization.

These developments will add to the momentum of the RMB's rise, officials and analysts said.

"The establishment of a clearing bank in the United States will promote the growth of RMB activity in the country and help accommodate an increase in volume and demand for RMB products and services," said Timothy F. Geithner, co-chair of the Working Group for US RMB Trading and Clearing, in a press release.

Siddharth Tiwari, director of the IMF's strategy, policy and review department, called the RMB's upcoming inclusion in the SDR basket "an important milestone in the process of China's global financial integration."

With steady economic growth and higher bond yields, China has seen growing interest from overseas in using the yuan and holding government bonds, despite a depreciation of the currency against the US dollar in recent months.

The RMB was the fifth most active currency for global payments by value in July, with a share of 1.9 percent, an increase from 1.72 percent in June, according to data from global transaction services organization SWIFT.

Since the beginning of the year, overseas institutions have added 96.5 billion yuan (US$14.5 billion) of investment in China's treasury bonds, according to a report by investment bank China International Capital Corp. Ltd. (CICC).

While the Chinese currency has weakened against the dollar, global acceptance of the RMB has been on the rise and yuan assets are still attractive to foreign investors, said Zhou Chengjun, deputy head of a department overseeing monetary policy at the People's Bank of China (PBOC).

"Although there is a change in the currency trend, overseas holders of yuan assets can still enjoy the benefits of China's growth," Zhou said.

The yuan exchange rate composite index, which measures the yuan's strength relative to a basket of currencies including the U.S. dollar, euro and Japanese yen, fell 6.5 percent as of the end of August from the end of 2015, according to data released by the China Foreign Exchange Trade System.

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