Yuan gets a fresh boost in internationalisation drive after Cambodia’s Central Bank adds it as official clearing currency. The yuan has received several fresh boosts in its rapid rise as a global currency, as more countries and overseas financial institutions adopt the use of the Chinese currency in payments and settlements.
On Wednesday, the National Bank of Cambodia (NBC), the central bank, announced that it would add the yuan and yen as official clearing currencies, allowing qualified banks to use both for international payments and settlements, the Xinhua News Agency reported.
While the NBC’s move is aimed at attracting more Chinese investment and boosting trade with China, it is also a vote of confidence in the Chinese currency, according to Liang Haiming, chairman of the China Silk Road iValley Research Institute.
“It shows that the yuan’s influence is growing rapidly. I believe that more countries will follow Cambodia’s move,” Liang Said.
The decision was followed by an announcement by Bloomberg on Thursday that yuan-denominated government and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index starting in April.
Once fully added, yuan-denominated bonds will be the fourth largest currency component after the US dollar, euro and yen, according to a statement.
The move will help meet global investors’ demand for yuan-denominated assets, the People’s Bank of China (PBC), the central bank, said in a statement on Thursday. Increased foreign holdings of yuan-denominated assets are another key component of the currency’s globalisation process, analysts said.
These developments come as the yuan has continued to rise as a global currency.
Since the IMF included the yuan into its Special Drawing Rights basket in October 2016, the total amount of yuan held as official foreign exchange reserves rose from a mere $84.51 billion in the fourth quarter of 2016 to $192.54 billion in the third quarter of 2018, according to the IMF.
Additionally, the PBC has continued to sign currency-swap deals with more foreign central banks, including most recently Ukraine, Malaysia, Japan and the UK.
China has also been in talks with countries and regions in Southeast Asia and those along the routes of the Belt and Road initiative to promote the use of the yuan in cross-border transactions.
Liang said that it is “inevitable” for the yuan to continue to rise as a global currency because of China’s rise economically and increasing calls to cut reliance on the US dollar, but the yuan’s internationalisation should not be a threat to anyone.
“The Yuan’s internationalisation is not a zero-sum game… it should provide more options for countries and help diversify global currencies and ensure the stability of the global financial system,” he said.