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China is building a yuan currency reserve to compete with the dollar and prop up other economies facing volatility


Nov 4, 2011

China is building a yuan currency reserve to compete with the dollar and prop up other economies facing volatility​


June 27, 2022 4:27 PM

The People's Bank of China announced it is developing a yuan reserve with five other nations.

Five nations including Hong Kong and Singapore will contribute 15 billion yuan, or about $2.2 billion.In May, China's foreign exchange reserves, the world's largest, grew for the first time in 2022.

The People's Bank of China is building a yuan reserve with five other nations in collaboration with the Bank for International Settlements.

China is teaming up with Indonesia, Malaysia, Hong Kong, Singapore, and Chile to each contribute 15 billion yuan about $2.2 billion to a Renminbi Liquidity Arrangement, China's central bank said in a Saturday statement. "When in need of liquidity, participating central banks would not only be able to draw down on their contributions, but would also gain access to additional funding through a collateralised liquidity window," the bank said.

Per the report, the funds will be stored with the Bank for International Settlements.

The announcement follows Russia and China's endeavor to develop a new reserve currency with other BRICS countries, President Vladimir Putin announced last week.

The basket of currencies would present a US-dominated IMF alternative, and include contributions from Brazil, Russia, India, China, and South Africa.

"The matter of creating the international reserve currency based on the basket of currencies of our countries is under review," Putin told the BRICS Business Forum on Wednesday, according to a TASS report. "We are ready to openly work with all fair partners."

Meanwhile, last month, China's foreign exchange reserves the world's largest grew for the first time in 2022, state data shows. The nation's reserves rose by $80.6 billion to reach $3.13 trillion.
At the same time, the US dollar has hit a 20-year high in recent weeks.

And, in March, reports emerged of a Saudi oil deal priced in the yuan. An economist told Insider that a deal done without dollars could signal unease in relying too heavily on the US currency.

"While any deal would be symbolic, the Chinese are not alone in the search for a non-dollar reserve currency," Aleksandar Tomic told Insider previously. "Other countries' need for dollars exposes them to the US financial sector, and consequently gives the US political leverage."

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Nov 4, 2011
China Moots Yuan Pooling Scheme To Counter US Dollar Dominance, Signs Pact With Bank For International Settlements
byPTI-Jun 28, 2022 01:46 PM +05:30 IST


The US Dollar and the Chinese Yuan.

Beijing, Jun 28 (PTI) China's central bank has signed an agreement with Switzerland based Bank for International Settlements (BIS) as part of Beijing’s plans to establish a yuan pooling scheme starting with Indonesia, Malaysia, Hong Kong, Singapore and Chile to counter the dominance of the US dollar.

The arrangement aims to provide liquidity support for participating central banks during future periods of market volatility by creating a reserve pool, the People's Bank of China (PBOC), which signed the agreement with BIS last Saturday, said.

The establishment of the arrangement is conducive to meeting the reasonable international demand for the renminbi, and will make positive contributions to the enhancement of the regional financial safety net, the apex bank said.

The arrangement initially includes central banks in Asia and the Pacific, including Bank Indonesia, the Central Bank of Malaysia, the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the Central Bank of Chile, the PBOC said.

The plan comes amid heightened worry in Beijing about the US dollar dominance and search by the global investors for safe harbours as the US embarked on monetary normalisation to tame high inflation, the Hong Kong-based South China Morning Post reported on Tuesday.

The Renminbi Liquidity Arrangement, which could be used in periods of market volatility in the future, initially includes the PBOC, the Bank Indonesia, the Central Bank of Malaysia, the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the Central Bank of Chile.

Each participant will contribute a minimum of 15 billion yuan (USD 2.2 billion) or the equivalent in US dollars, creating a reserve pool at the BIS, a statement from the Switzerland-based financial institution owned by central banks said.

They will also have access to additional funding through a collateralised liquidity window, which allows participating central banks to make additional borrowing using their existing holdings as collateral, the Post report said.

Lately, China’s renminbi has been used more often in trade settlements, international investment and financing, and foreign exchange transactions, more central banks have included it in their foreign exchange reserve pools, and market players have gradually displayed increased willingness to use it, state-run China Daily reported.

However, the US Federal Reserve is speeding up tightening of monetary systems and launched the process of balance sheet contractions in June.

Against this backdrop, the launch of a renminbi liquidity arrangement is of great significance to defusing potential risks, the Daily’s report said.

“It could draw more members to join in the future,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank.

China has for years sought to increase global use of the yuan.

Beijing has signed more than three trillion yuan worth of bilateral currency swap deals with more than 40 countries, including 400 billion yuan each with Hong Kong and South Korea, 350 billion yuan each with the Bank of England and the European Central Bank, 300 billion yuan with Singapore and 150 billion yuan with Russia, according to the Post report.

Chinese authorities took a prudent approach to yuan internationalisation in the 14th five-year plan for 2021-25, calling it a matter of market choice and a gradual process.

“The announcement shows that the Chinese central bank has been making a huge effort to promote the construction of institutional infrastructure. This could be due to the weaponisation of finance in recent years,” he told the Post.

While tension over the Hong Kong national security law triggered heated discussions over potential China-US financial decoupling in 2020, recent Western sanctions on Moscow have served as a particular wake-up call for Beijing, including the exclusion of major Russian banks from the Swift messaging system and freezing the assets of the Russian central bank.

The share of the yuan in global payments, forex transactions and reserve assets is still far behind the US dollar, but many analysts believe the Russia-Ukraine war and market turmoil following the US Federal Reserve’s aggressive rate hikes could give it a chance to catch-up.

“Sanctions have disrupted the global financial order … and they will accelerate de-dollarisation,” Citic Securities, a leading Chinese investment bank, wrote in its midyear outlook last week. Beijing’s plan for yuan internationalisation may also get a push through the Belt and Road Initiative, especially within Asia, the Post report said.

“The yuan has initially played the role of an anchor currency in Asia,” Ding Zhijie, head of the State Administration of Foreign Exchange’s (SAFE) research centre, wrote in the June issue of Modern Bankers magazine.

But the SAFE official said yuan internationalisation will be complicated and a long-term task.

“In the future we should pay more attention to economic connections and enhance regional monetary and financial cooperation,” he said.

The yuan accounted for 2.14 per cent of global payments in April, far below the 41.81 per cent commanded by the US dollar.

In terms of its proportion of global foreign exchange reserves, the yuan ranked fifth at the end of last year with a 2.79 per cent share, compared to the 58.5 per cent for the US dollar and 20.6 per cent for the euro.

The yuan’s weight in the International Monetary Fund’s special drawing rights basket will be raised to 12.28 per cent on August 1, an increase of 1.36 percentage points from the 2016 assessment, according to the Post report.



Nov 4, 2011

India’s top cement maker paying for Russian coal in Chinese yuan​

June 29, 2022

By Sudarshan Varadhan

New Delhi, June 29 (Reuters) – India’s biggest cement producer, UltraTech Cement (ULTC.NS), is importing a cargo of Russian coal and paying using Chinese yuan, according to an Indian customs document reviewed by Reuters, a rare payment method that traders say could become more common.

UltraTech is bringing in 157,000 tonnes of coal from Russian producer SUEK that loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino, the document showed. It cites an invoice dated June 5 that values the cargo at 172,652,900 yuan ($25.81 million).

Two trade sources familiar with the matter said the cargo’s sale was arranged by SUEK’s Dubai-based unit, adding that other companies have also placed orders for Russian coal using yuan payments.

The increasing use of the yuan to settle payments could help insulate Moscow from the effects of western sanctions imposed on Russia over its invasion of Ukraine and bolster Beijing’s push to further internationalise the currency and chip away at the dominance of the U.S. dollar in global trade.

The sources declined to be identified as they are not authorized to speak to the media. UltraTech and SUEK did not respond to a request seeking comment.

“This move is significant. I have never heard any Indian entity paying in yuan for international trade in the last 25 years of my career. This is basically circumventing the USD (U.S. dollar),” a Singapore-based currency trader said.

The sale highlights how India has maintained trade ties with Russia for commodities such as oil and coal despite the western sanctions. India has longstanding political and security ties with Russia and has refrained from condemning the attack in Ukraine, which Russia says is a “special military operation”.

It was not immediately clear which bank opened a letter of credit for UltraTech and how the transaction with SUEK was executed. SUEK did not respond to a request seeking comment.


India has explored setting up a rupee payment mechanism for trade with Russia, but that has not materialized. Chinese businesses have used the yuan in trade settlements with Russia for years.

For Indian trade settlements using the yuan, lenders would potentially have to send dollars to branches in China or Hong Kong, or Chinese banks they have tie-ups with, in exchange for yuan to settle the trade, two senior Indian bankers said.

“If the rupee-yuan-rouble route turns out to be favourable, the businesses have every reason and incentive to switch over. This is likely to happen more,” said Subash Chandra Garg, a former economic affairs secretary at India’s finance ministry.

India’s bilateral trade with China, for which companies largely pay in dollars, has flourished even after a deadly military clash between the two in 2020, though New Delhi has increased scrutiny on Chinese investments and imports, and banned some mobile apps over security concerns.

An Indian government official familiar with the matter said the government was aware of payments in yuan.

“The use of the yuan to settle payments for imports from countries other than China was rare until now, and could increase due to sanctions on Russia,” the official said.

India’s energy imports from Russia have spiked in the recent weeks as traders have offered steep discounts, Reuters reported this month. New Delhi defends its purchases of Russian goods saying a sudden halt would inflate prices and hurt consumers.

Business units of Russian coal traders in Dubai have become active hubs for facilitating deals with India in the recent weeks, as Singapore has grown wary of provoking western nations that invoked sanctions against Russia, said multiple coal traders based in Russia, Singapore, India and Dubai.

A Russian coal trader based in Dubai said the biggest challenge was sending roubles to Russia.

“You can either take payments in yuan in Dubai, or receive it in dollars or (Arab Emirates) dhiram and convert it to rouble” he said, adding it was easier to convert the yuan to rouble and was preferred over other currencies.

($1 = 6.6899 yuan)


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