China pushes for increased use of yuan

Several Chinese banks are making efforts to promote the use of the Chinese yuan currency overseas, and reports suggest that the amount of yuan used for cross-border transactions has surged in recent months. This has been supported by the booming trade between China and Russia as well as China's increasingly close relations with the Central and Eastern European region.

The economic downturn in Western countries has also led to an increase in the use of yuan, with Russia becoming a major hub for yuan-denominated trade, ranking fourth in the world. The yuan had previously accounted for less than 1% of Russia's foreign exchange market in early 2022 but that proportion has increased to 40-45% currently.

Harbin Bank, located near the Russia-China border, reports that its cross-border yuan business surged 9 times to a record high last year, while the US-China trade war has led to an increase in trade between China and Russia.

According to SWIFT, the proportion of yuan used for cross-border trade worldwide has risen from 1.3% two years ago to 4.5% in February, while the US dollar remains dominant at 84%.

Wang Jianhui and Qian Liexian, executives of Bank of Communications, stated that "China should be prepared for the worst situation that could happen such as being cut off from SWIFT and China should promote the use of the yuan for cross-border transactions." Even Chinese banks that do not do business on a large scale with Russia are increasingly using the yuan for cross-border transactions. The Bank of Jiujiang and Postal Savings Bank of China reported that the volume of yuan-denominated account payments across borders surged more than twice, while the Chinese government is pushing for the use of yuan worldwide.

Joseph DiPippa and Andrea Leonardi PalaCé, economists, wrote in an article last week that "the yuan will not replace the US dollar at the global level but the yuan will begin to replace the US dollar in China's trade relations with some countries. Making the yuan a global currency may be the goal of the Chinese government. This goal includes helping China to suffer less impact from fluctuations in exchange rates and less impact from US monetary policy measures."

Some analysts also argue that the volume of China's use of the yuan for cross-border payments is slowly increasing and this could be laying the groundwork for a new trading system beyond the use of the US dollar.

Technical analysis data (5H)

Resistance: 6.9183, 6.9220, 6.9259

Support: 6.9107, 6.9068, 6.9031

Source: Investing.com

 

Pivot Points May 8, 2023 03:19 PM GMT+7