Over the past decade or so, China has been emerging from relative international economic isolation. In gradually opening up its potentially massive trading resources to the global market, one aspect that had always been at the forefront of its philosophy has been promoting the national currency, the yuan. There are signs that this is starting to show real dividends.
The fact is, the yuan accounted for 8.7% of letters of credit and collections that were used in international trade finance this October. This figure is only surpassed by the US dollar; indeed it eclipses the 6.6% share enjoyed by the euro, according to a statement released by the Society for Worldwide Interbank Financial Telecommunication.
China has always sought a much greater role for its currency in the international trade and investment markets. In order to achieve this, it has been steadily loosening controls as part of a ‘once in a generation' economic overhaul undertaken last month. Agreements have been signed that involve trading the currency more freely in financial centres right across the world, from Singapore to London to New York.
A survey undertaken by Bloomberg reached some equally poignant findings about the far eastern trading superpower. Currently gaining enough financial clout to be measured as the world's second largest economy, it is forecast that China may grow by up to 7.6% this year. This figure compares with an average of a mere 1.1% for the 'Group of 10' developed nations.
This trend was highlighted in the statement by David Simmonds, head of currency and emerging market strategy at Royal Bank of Scotland Group plc: “The yuan is on the way to become a truly, truly gigantic market. Volumes will continue to grow with the abolition of the offshore market and with broader liberalization”.
The People's Bank of China have outlined plans that will see an end to the practice of daily currency intervention. This is a further example of the ruling party's drive to modernize the national economy. In fact, HSBC Holdings plc recently forecast that the yuan, which had claimed to a 20-year high this October, will become the main tender of global trade after the US dollar and euro, by 2015.