By Anjani Trivedi
HONG KONG--The role of China's yuan in international trade is
facing headwinds, driven by sharp moves in foreign-exchange markets
and a potential blow to Beijing as it pushes for a bigger role for
its currency abroad.
The overall usage of China's currency by global companies has
dropped 5% over the last year, driven by European companies scaling
back its use as the euro's value has plunged against the yuan,
according to an investor survey by HSBC Holdings. In Hong Kong, the
largest offshore market for the yuan, usage has dropped 6% though
remained steady in other Asian hubs.
The shrinking usage of the currency abroad is a reversal after
years of increasing use to settle trade and comes just as Beijing
pushes for it to be included as a reserve currency.
The hurdles come as the yuan is going to face its biggest test
yet: possible inclusion as an official reserve currency by the IMF.
In May this year, the International Monetary Fund's Executive Board
will conduct a review of the currencies to include in the Special
Drawing Right, an international reserve asset that can supplement
member countries' official reserves. Currently, its value is based
on the dollar, euro, yen and sterling.
This past weekend, China's central bank governor reiterated the
world's second largest economy's credentials to International
Monetary Chief Christine Lagarde, who was visiting Beijing. He said
the yuan should be included in the IMF's special drawing
rights.
From a rush to set up currency swap agreements with countries in
emerging and developed markets, to opening up parts of its capital
markets this year, China has been on an aggressive campaign to
internationalize its currency since 2008. Inclusion in the IMF's
special drawing rights marking a major step in this process,
reflect the increasing weight of China in the world economy and
potentially chipping away at the dominance of the dollar.
The HSBC survey of 1,610 international companies that are
engaged in business with mainland Chinese companies or are a
business based there with annual sales of at least $3 million
though found fewer businesses now expect an increase in
cross-border trade with China, as growth forecasts in the United
Kingdom and France decline, pointing to lesser trade and business
opportunities.
The dip in usage also comes as major central banks across the
world, barring that of the U.S., have stepped up monetary policy
easing measures and sent their currencies to multiyear lows against
the U.S. dollar. The yuan too posted its biggest annual loss in
2014 against the greenback after years of one-way appreciation,
though it has been steadily appreciating against a basket of other
currencies.
"Corporate use of the renminbi reached a watershed last year,"
said Simon Cooper, chief executive of HSBC Commercial Banking in
news release, referring to the currency's official name. The yuan
is "maturing as a global currency; one that fluctuates in value and
one for which demand can be influenced by developments outside
mainland China."
Of all the companies surveyed by HSBC this year, 54% expected to
boost cross-border trade with China in the next 12 months, compared
with the 59% last year. Over a quarter of firms "across all 14
markets that aren't using the RMB today said they plan to use it in
the future," according to the survey. However, outside the
Asia-Pacific region, "there is a slight weakening in terms of
future usage intent across all markets with the exception of
Germany, which marginally strengthens future usage intent."
"This is, in fact, somewhat positive news because what it's
showing is that the RMB is becoming part of the global economy.
And, it's being considered vis-à-vis currencies that have been
operating in global markets," said Evan Goldstein, global head of
renminbi solutions at Deutsche Bank, based in Hong Kong. "What's
happening today and perhaps could happen on and off through 2015,
is not a testament to the commitment of [China] towards
internationalizing the RMB."
More than a fifth of all companies surveyed say they discussed
using the yuan for business. But, fewer companies expect to gain
from the one-way appreciation of the yuan.
Still, recent data from payment provider Society for Worldwide
Interbank Financial Telecommunications, or Swift, shows a rise in
the currency's usage in global payments, trade settlement and in
money market instruments, although still much below the U.S.
dollar.
Write to Anjani Trivedi at anjani.trivedi@wsj.com
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