Yuan Forwards Gain on Proposal to Boost Currency Swaps

(Corrects yuan trade settlement estimate from 1.5 billion yuan to 1.5 trillion in paragraph six.)

The yuan advanced after a report that Chinese Premier Wen Jiabao has proposed expanding currency swaps with other countries, boosting demand for the renminbi in the offshore market.

Wen suggested increasing the use of swaps and cooperating more on yuan-trade settlement with countries that belong to the Shanghai Cooperation Organization, the China News Service reported today. Member countries include Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and China, according to the organization’s website. India, Iran, Mongolia and Pakistan take part as observer states, it said.

“Expanding currency swaps and yuan-trade settlement will boost demand for the currency,” said Kenix Lai, a Hong Kong- based foreign-exchange analyst at Bank of East Asia Ltd. “That’s very positive for offshore yuan trading in Hong Kong as the city handles most of China’s yuan-trade settlement.”

Twelve-month non-deliverable forwards on the yuan rose 0.14 percent to 6.3448 per dollar as of 10:30 a.m. in Hong Kong, a 0.03 percent premium to the onshore spot rate, according to data compiled by Bloomberg. The yuan gained 0.24 percent to 6.3680 in Hong Kong. It touched 6.3665, the strongest level since Sept. 9.

The yuan strengthened 0.07 percent to 6.3465 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The People’s Bank of China set the reference rate 0.06 percent weaker at 6.3247. The currency is allowed to trade 0.5 percent either side of the rate.

Yuan Trades

Yuan-trade settlement in Hong Kong may reach 1.5 trillion yuan ($236 billion) by the end of this year, the Hong Kong Economic Times reported on Nov. 4, citing an interview with Donald Tsang, the city’s chief executive. About 9 percent of China’s trade in the first half of this year was settled in yuan, according to the Hong Kong Monetary Authority. Banks in Hong Kong handle over 80 percent of China’s trades settled in the currency, the city’s de facto central bank said.

China’s inflation for October may drop to 5.5 percent on falling food prices, Shanghai Daily reported, citing Yuan Gangming, a researcher at the Institute of Economic Research at the Chinese Academy of Social Sciences. Official consumer-price data for October will be released tomorrow.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.