China’s yuan seeks to challenge the US dollar but traders don’t want to use it

China’s yuan seeks to challenge the US dollar but traders don’t want to use it

The dollar’s internationalisation catalog, as measured by China’s northern bank, has greatly improved since 2009, but it still lags far behind the dollar and the euro in terms of business arrangement, global payments, international trading and central bank forex reserves.

The new study discovered that additional obstacles included obstacles to cross-border cash flows, fluctuations in the yuan trade rate, interest rate differences between the yuan and foreign currencies, and other factors.

More than 63.84 per cent of respondents cited the” richness of policies” as the main problem, and more than 40 per cent said problems lie in the” interoperability of laws and regulations” and” funds- movement barriers”.

Almost 30 per share cited the dollar’s “limited purchase scope”, while about 20 per cent pointed to the “lack of hedging instruments”.

Some original equipment manufacturers ( OEMs) will convert payments made in money from their overseas offices to yuan to pay for production and operation costs, according to George Lu, an activities director at a German medical device business in the Yangtze River Delta. Any surplus yuan is then held in Chinese bank accounts.

The yuan-denominated currency in our bank account is only used for short-term wealth management products, and when the exchange rate is favorable, it is converted back to US dollars.

” We are not considering other yuan business for the time being, because the policy and market risks are uncontrollable”.

Southeast Asian customers are more likely to settle in Yuan, according to Kent Liu, a Guangzhou-based digital printing producer with factories in both the Americas and Southeast Asia.” Most of them are primarily of Chinese backgrounds.

Customers in other overseas markets currently prefer to settle in dollars because the yuan is still not very useful for investing in their nations.

According to the survey, the majority of respondents were engaged in cross-border trade settlements in the yuan or in foreign exchange trading that was related to yuan.

However, less than a quarter of them conducted offshore yuan trade financing, yuan deposits or yuan- denominated wealth- management businesses.

In terms of their plans for the second quarter, less than 80 % of the businesses had no idea how to increase their yuan settlements, while 9 % planned to increase the amount by 10 % to 50 %, and 2 % planned to increase the amount by 50 % to 100 %.

The report came to the conclusion that a rise in global economic and political uncertainty, increased volatility in international financial markets, increased geopolitical risks, and increased Sino-US trade frictions had all had a significant impact on cross-border yuan settlements.

It urged authorities to make more efforts to streamline cross-border yuan settlement procedures, lower transaction costs, and support cross-border yuan settlements for new foreign trade companies, as well as increase the use of the currency in trading important commodities like oil, gas, and iron ore.