China’s yuan is increasingly being used to settle trade transactions in Asia,

China’s yuan is increasingly being used to settle trade transactions in Asia, gradually cementing its way to becoming a regional ‘anchor’ currency, the Asian Development Bank (ADB) said.

The rise of the currency’s use in trade and in the financial markets is likely to nudge China to further open up its financial sector if it wants the yuan to play a bigger global role.

The yuan, or renminbi, “is being increasingly used to settle trade transactions”, the ADB said in a statement issued in Singapore at the launch of its latest report, the Asian Economic Integration Monitor.

Iwan Azis, head of ADB’s Office of Regional Economic Integration, told reporters at the launch that some countries engaging in bilateral trade with China settle in renminbi, and their number has been increasing.

Hong Kong, Singapore and London settle some international trade in yuan, and this month the Singapore Exchange said it is ready to quote, trade, clear and settle securities denominated in yuan, the ADB report said.

He said it is “only a matter of time” before the yuan becomes an anchor currency, given that China is now the world’s second biggest economy.

Since late 2008 China has established 20 bilateral local currency swap arrangements with countries within and outside Asia, totalling 1.6 trillion yuan (US$157 billion), ADB said.

Being an anchor currency means that regional countries that use the yuan to settle their trade with China will manage their currencies depending on the yuan’s movements.

The yuan can become a reserve currency if China opens up its financial markets and allows other countries to buy and hold yuan assets.

Source AP