S'pore can help yuan go international, say experts

Republic's forex trading competitiveness a factor in boosting use of Chinese currency

It is a long road fraught with challenges for the internationalisation of China's currency, the yuan, and Singapore can play a role in this endeavour, analysts said.

Speaking at a forum yesterday, Dr Raymond Yeung, chief economist of Greater China at the Australia and New Zealand Banking Group, said the internationalisation of the yuan faces major challenges.

Not least of these is that commodities and a lot of other goods are priced and billed in the US dollar.

"It is still a global standard to use the US dollar," he told The Straits Times on the sidelines of the China-Singapore Executive Forum.

"This is why we haven't seen very big progress in the international use of the yuan in trade."

However, transacting in the US dollar posed risks for businesses as any shift in the exchange rate between the greenback and yuan could lead to losses, he said earlier at a session on the internationalisation of the yuan at the forum. He noted that if China and Singapore were to use the yuan as a currency for their trade, they could eliminate the risk faced in the adjustment between the yuan and the US dollar.

He said the Singapore and China governments could get their government-linked and state-owned firms, respectively, to trade in the yuan as a way of boosting the internationalisation of the Chinese currency. "The more countries use the currency, the more popular it will be."

Dr Yeung said Singapore is well- placed to boost the use of the yuan, given that it has competitiveness in currency trading, and a low tax rate for financial and treasury centres of global corporations.

Agreeing that the use of the yuan needs to be encouraged, Mr Clifford Lee, managing director and head of fixed income at DBS Bank, gave instances in which Singapore could do so. One of the areas in which yuan use can be encouraged is trade between Singapore and China. Another is investment, with Singapore being the largest foreign direct investor in China. This would then reduce cross-rates volatility - that of converting from the Singapore dollar to the US dollar to the yuan.

Singapore is home to many financial and treasury centres, Mr Lee said, adding these could start to trade in the yuan. Singapore as a financial centre could also boost yuan internationalisation through its yuan bond market.

Yesterday's forum also touched on investment opportunities in China-Asean economic cooperation, with some speakers noting that Chinese firms could use Singapore as a base for exploring opportunities in other Asean countries.

The forum was jointly organised by the Singapore Chamber of Commerce and Industry in China, and Caixin Media.

A version of this article appeared in the print edition of The Straits Times on September 16, 2017, with the headline 'S'pore can help yuan go international, say experts'. Print Edition | Subscribe