Chinese Yuan Expanding Rapidly to Become Global Reserve Currency

According to the People’s Bank of China, the trade transactions settled between June and November in Chinese currency is to the tune of 340bn yuan ($51bn). In a bid to make yuan a global reserve currency, China launched a pilot scheme of allowing companies to settle cross-border trade in yuan in July 2009.

The official reports state that China has increased the number of firms allowed to use the yuan to settle international transactions from 365 to 67,359. The whopping expansion during the trial period is expected to give added impetus to trade as well as strengthens yuan’s position as a global reserve currency.

The official website of the People’s Bank indicated the amount of yuan settlement in the past six months was more than seven times the total level at its initial stage and well satisfied the demand of companies in the business. Last few years China has been strongly pursuing measures to replace and cut reliance on the US dollar in international trade.

The yuan transaction success is likely to mitigate the pressure on China from the US and other countries blaming the Chinese currency is kept artificially cheap to give Chinese exporters a trade advantage. The start of ruble-yuan trading from next week at the Micex Stock Exchange in Moscow will further consolidate yuan’s role in global trade.

Moreover, Alexei Ulyukayev, first deputy chairman of Russia’s central bank is understood to have said if the discrepancy between China’s share of global trade, GDP and the lack of convertibility had been overcome - in no time the yuan would become global reserve currency. Likewise, Xiao Gang, chairman of Bank of China Ltd., in the China Daily said the world’s second-largest economy needed to make the yuan fully convertible gradually to facilitate the currency’s internationalization.

By Jose Roy