Yuan to Become the Third Currency for International Trade in 3 Years

The use of the yuan for cross-border trade will accelerate and the Chinese currency to become the third currency for trade across the world in three years, predicted Thursday the chief economist for China from bank HSBC.

To reduce the exposure to fluctuations of dollar, the Chinese government encourages the use of the yuan in trade and signed a series of agreements, primarily with its neighbors and countries of South East Asia.

“We predict that in three years, the rules of cross-border trade in yuan represent one third of total Chinese exports and imports, totaling between 1,500 and 2,000 billion dollars a year,” said the economist Qu Hongbin (屈宏斌).

“In volume, it will make the yuan currency to the third world trade,” said Qu who sees in this development “a major turning point not only for China but also for the regional (Asia) and international market.”

In 2010, 5.7% of foreign trade of China, or 506.3 billion yuan was paid in yuan, according to figures from the central bank in June cited by the Dow Jones agency.

The rise of the yuan in international trade is more important than the disruption of its gradual appreciation against the dollar, which is expected to continue at a slow rate of 3% to 5% per year, further indicated the economist at HSBC.

Contrary to popular belief, the rise of the yuan, has appreciated by over 5% since June 2010 against the dollar, would not allow Beijing to reduce inflation by paying less for its imports, since such a measure cause an increase in Chinese demand for raw materials, said Qu.

Ultimately, the benefit of the revaluation of the currency is thereby canceled, he said.

“This works for smaller countries but not for countries like China,” he said.

In addition, the Chinese government does not need such a measure to fight against inflation, because it should start to level off in the second half, after seeing a peak in June or July.

“In June, the index of consumer prices will reach 6%, perhaps in July it will also reach a very high level, but then we will see a gradual moderation of inflation” in China, according Qu.