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China allows direct trading between yuan, Singapore dollar
October 27, 2014, 9:50 am

HSBC expects the yuan to be one of the top three global trade currencies by 2015 [Xinhua]

HSBC expects the yuan to be one of the top three global trade currencies by 2015 [Xinhua]

China on Monday announced it would allow direct trading between the renminbi and the Singapore dollar beginning Tuesday, a step that is likely to increase international usage of the yuan by lowering trading costs.

The Chinese government is gradually relaxing its hold over the yuan and making it a global reserve currency. China is also under pressure to diversify its foreign exchange reserves, which stood at $3.89 trillion at the end of June.

The announcement by China Foreign Exchange Trading System (CFETS) extended the yuan’s list of direct onshore trade to more major currencies, including the US dollar, Russian ruble, the euro, British sterling, Japanese yen, Australian dollar, New Zealand dollar, and Malaysian ringgit.

The move aims to boost bilateral trade and investment, facilitate the use of the two currencies in trade and investment settlement and reduce exchange costs for market players, the CFETS said in a statement on its website.

The yuan has staged a spectacular rise in recent years on the back of China’s economic ascent.

The move is also expected to help Singapore in its bid to become a renminbi offshore center.

According to the arrangement, China’s interbank foreign exchange market will kick off direct trading between the yuan and the Singapore dollar via spot, forward and swap contracts.

Previously, the exchange rate between the two currencies was calculated based on the yuan-US dollar central parity rate and the Singapore dollar-US dollar rate.

Beijing is keen on substituting the US dollar with the yuan in all of China’s trade with other countries.

China’s central bank on Monday authorized and welcomed the CFETS announcement, saying it is an important measure between the Chinese and Singaporean governments to jointly push forward bilateral and economic relations.

“The direct yuan-Singapore dollar trade is good for forming a direct exchange rate between the two currencies and reducing exchange costs,” the PBOC said in a statement on its website.

To boost the use of the yuan internationally, China has also signed multiple currency swap agreements totaling 2.9 trillion yuan $472 billion) with 26 overseas monetary authorities.

The PBOC has also authorized offshore renminbi clearing and settlement arrangements in Singapore, London, Frankfurt, Seoul, Paris and Luxembourg, as well as Taiwan, Hong Kong and Macao.

HSBC expects the yuan to be one of the top three global trade currencies by 2015.


TBP and Agencies

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