May 06, 2011 04:58 PM

HSBC Says Yuan to be Among Top Three Int'l Currencies

(Beijing) – China's currency, the yuan, is expected to outrank the British pound to become one of the three most favored international trade settlement currencies in the latter half of this year.

According to HSBC in a research report published May 4, the top five settlement currencies for the second half of 2011 will be the U.S. dollar, euro, Chinese yuan, British pound and Japanese yen. The research was based on a survey of over 6,000 trade companies in 21 markets across the globe.

Despite wider acceptance, yuan trade settlement is still very limited. The report said that the exchange rate remains the central driving factor behind yuan trade settlement. Nearly half of all enterprises surveyed said they use the yuan for trade settlement to hedge against exchange rate fluctuations, while 44 percent said they expect the currency to appreciate.

Though enterprises in emerging economies showed significantly more favor towards yuan trade settlement compared with their counterparts in developed countries, the share of yuan trade settlement in mature markets such as the U.S. has gained on that of the British pound.

Ouyang Bosi, head of the Trade and Supply Chain Department of HSBC Bank (China), said the bank is planning to enhance its yuan business services in overseas markets to meet the growing demands for cross-border yuan trade settlement.

A separate survey conducted by HSBC in 18 Chinese cities found nearly 40 percent of enterprises that are yet to adopt yuan for trade settlement have inadequate banking facilities with regard to yuan settlement services.

HSBC also predicted that, by 2015, over half of all China's trade settlements will be yuan-denominated, with the total amount reaching US$ 2 trillion.

In emerging economies, 16 percent of enterprises surveyed in Southeast Asian countries said they would choose yuan settlement, while the number for British pound stood at 3 percent. Thirteen percent of enterprises surveyed in the Middle East opted for yuan settlement, compared with 10 percent for the British pound. In Australia, the proportion of enterprises, which chose the yuan, tied with that of enterprises, which chose the British pound, in third place at 6 percent.

Companies in the Chinese Mainland, Hong Kong and Macao embraced yuan trade settlement with more enthusiasm. The combined proportion of enterprises in these three markets, which chose yuan for trade settlement during the six months to follow, reached as high as 45 percent, second only to that for the US dollar and surpassing that for euro, which stood at 27 percent.

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