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UPDATE 1-Yuan to comprise 30-60 pct of China trade settlement in mid-term - HKMA
February 18, 2014 / 7:56 AM / 4 years ago

UPDATE 1-Yuan to comprise 30-60 pct of China trade settlement in mid-term - HKMA

* HKMA sees sharp rise in yuan for trade settlement in mid-term

* HK banks handled 83 pct of total yuan for trade settlement in 2013

* Yuan for China direct investment may rise to 50 pct in 5-10 years - HKMA (Adds details, quotes)

HONG KONG, Feb 18 (Reuters) - The Hong Kong Monetary Authority (HKMA) said on Tuesday it expects China’s yuan used for trade settlement to rise to 30 to 60 percent of the country’s total in the medium term.

The authority said that would represent a two- to four-fold jump from the current level.

“As China continues its reform and further liberalisation of capital account and renminbi convertibility, there does not seem to be any particular reason that renminbi in the mainland’s bilateral trade cannot reach that of the yen or the euro in five to 10 years,” said Norman Chan, Chief Executive of the city’s de facto central bank.

Some 50-60 percent of the euro zone’s external trade is settled in euro, and the corresponding estimate for the yen is 30-40 percent, Chan said.

Trade settlement in yuan accounted for 18 percent of China’s total trade in 2013, compared with just 2 percent in 2010, a year after the yuan trade settlement pilot scheme kicked off, statistics from the People’s Bank of China showed.

Among yuan trade settlement, transactions handled by banks in Hong Kong stood at 3,841 billion yuan ($633.40 billion) last year, comprising 83 percent of the total.

The use of yuan in China’s inward direct investments has risen from 5 percent in 2011 to about 20 percent and this could rise to 50 percent in five to 10 years, the HKMA added.

The world’s second-largest economy has stepped up efforts to promote its currency to foreign investors, aiming to lift the global status of the “redback” to that of the U.S. dollar.

The yuan has become one of the world’s 10 most-used currencies for payments, overtaking the Singapore dollar and Hong Kong dollar, according to global transaction services organisation SWIFT.

As the Chinese currency gradually expands its footprint beyond Hong Kong, competition among potential offshore yuan centres, including Taiwan, Singapore and London, has also intensified.

Taiwan, which only entered the offshore yuan race a year ago, has seen rapid expansion of its yuan pool. Yuan deposits in the island amounted to 214.5 billion yuan by the end of January, up 17.5 percent from a month earlier.

While Hong Kong accounts for 70 percent of offshore renminbi deposits and payment transactions globally, the city will not hold such a big share forever, Chan said.

“It is unrealistic for one to expect a long-standing monopoly by Hong Kong on the world’s offshore renminbi business...After all, the opening up and facilitation of cross-border use of the renminbi is to serve the country’s needs for pursuing financial reforms and economic growth,” Chan said.

The HKMA said the renminbi real time gross settlement system saw an average daily turnover of 395.4 billion yuan in 2013, while in 2010, it was only 5.3 billion yuan.

Average daily turnover of offshore yuan foreign exchange also climbed to 20 billion yuan last year.

HSBC expected the yuan to become fully convertible within five years and the currency was on track to become the third largest trade settlement currency by 2015.

$1 = 6.0641 Chinese yuan Reporting By Michelle Chen and Clement Tan; Editing by Jacqueline Wong

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