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Cover Stories Series 2014> Reform Initiatives Underway for 2015> Retrospect> Feature
UPDATED: July 21, 2014 NO. 30 JULY 24, 2014
Putting Yuan on the Map
China takes tentative steps toward internationalizing the yuan
By Wang Jun

Trade relations between the two countries have also been close, yielding encouraging signs. In 2013, bilateral trade reached $274.2 billion. Bank of Korea data also showed that South Korean residents' yuan deposits jumped 70 percent to the equivalent of $11.33 billion in the first five months of 2014.

On July 4, BOC also inked memorandums of understanding with Korea Exchange (KRX)—South Korea's main bourse operator—and Korea Securities Depository (KSD)—the country's central securities depository. These will enable all parties to cooperate in renminbi clearing; the settlement, development and promotion of renminbi-related financial products; and the pooling of client resources, thus nurturing the development of a local renminbi market.

"The cooperation between BOC, KRX and KSD reflects both the collaborative spirit shared by the two countries and the trend toward the renminbi's internationalization. It will expedite trade and investment between Chinese and Korean enterprises, and promote the construction and development of an offshore renminbi market in South Korea," said Tian Guoli, Chairman of BOC.

Tian said the scope of cooperation between the two nations will expand further and the prospects for bilateral financial cooperation look promising. With the advancement of its internationalization, the renminbi is now widely used in trade, capital settlement and remittances between the two countries, and also has become the second most widely used foreign currency in South Korea.

Boosting offshore market

Overseas clearing banks serve as a major channel for cross-border renminbi transactions.

Zhao stated that the signing of renminbi clearing arrangements is based on common understanding between monetary authorities in China and other countries in establishing, improving and advancing an overall overseas clearing system for renminbi. Such an agreement will increase the number of optional currencies for clearance, increase the efficiency of transactions, reduce the risks of transactions and lower trading costs. "It will also benefit foreign trade companies, investment and financing institutions and other market participants," said Zhao.

According to BOC figures, at the end of the first quarter, Hong Kong was still the largest offshore renminbi center in the world, followed by Singapore. In Europe, the UK is the country with the largest amount of cross-border renminbi transactions outside Asia, Germany is China's biggest trading partner in Europe and Luxembourg is an important hub for renminbi on the European continent.

China is now the biggest trading nation in the world. In 2013, China's trade in goods amounted to $4.16 trillion and its overseas investment reached $90.1 billion. In the first four months of this year, 17.5 percent of China's trade in goods was settled in renminbi, and 27.5 percent of its overseas investment was settled with the yuan.

In the future, the offshore renminbi market is expected to spread its wings even further.

"Clearing banks for renminbi transactions have been expressly designed for these conditions. They will be of undoubted benefit to the development of offshore renminbi business and will significantly increase the volume of renminbi-related transactions in financial centers," said Zong.

"It is unnecessary to appoint too many clearing banks, and a few strategically placed in the world's major international financial centers will suffice. They must have close ties with global trade and investment, and radiate from these financial centers, establishing a complete offshore renminbi market in foreign countries," he concluded.

Email us at: wangjun@bjreview.com

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