YUAN AS THE WORLD’S RESERVE CURRENCY: REALITIES AND PROSPECTS

A.V. Grishanova, candidate of economic sciences,

V.N. Savinykh, candidate of economic sciences, А.А. Kushch

Novosibirsk State University of Economics and Management "NINH"

SUMMARY

This article deals with the peculiarities of the People’s Republic of China currency unit yuan: world currency, offshore zones, potential and prospects of yuan usage.

Key words: yuan, Hong Kong Exchange, listing transactions, renminbi, world’s trading currency.

In a sign of debt crisis at the same time the inconsistencies between participants of the Eurozone are strengthening. On the one hand, discontent of its largest states that have to appropriate significant funds to help avoid bankruptcy of weaker participants of the European Union is building. On the other hand, the debtor countries that are obliged to adopt unpopular among the population measures aimed at decreasing the social expenditures and reducing the budget deficit forced by the Eurozone developed countries become more disappointed with participation in European integration process.

It is beyond doubt that debt problems of the leading developed countries in a long-term perspective shall be one of the key destabilizing factors for the global economy and financial markets as their capacity to withstand occurring crisis situations is decreasing. Now therefore, it is predictable the emergence of new types of currencies laying claim to the status of convertible currency.

The beginning of 2015 can be considered as one of the central points of the global economy change. Escalation of conflict within the territory of Ukraine, tension arising between EU countries, the USA and Russia as well as falling natural resource prices have led Russian economy to decreasing in GDP indexes, inflation percent increase and low economic growth at an annual rate.

Together with all negative tendencies forming in the world economy, the outstanding dynamic of the People’s Republic of China national currency development is of a special interest.

In the middle of 2013 one of the biggest banks of England and Wales HSBC presented a publication for the wide range of readers forecasting the yuan future. According to the expert opinion, the further prospects were based on the three fundamental stages binding on yuan as the world’s reserve currency – of which formation of the world’s trading currency, development of functions for transition to the leading investment currency would lead to the last frontier for yuan as the world’s reserve currency.

Having analyzed chronological development of the Chinese economy and retraced the way of becoming China as a key player at the financial market we can distinguish several decisions made by the country’s leadership that assisted rise, strengthening and further growth.

A key role played a testing site created in the former English enclave and later transferred under the jurisdiction of the People’s Republic of China, Hong Kong SAR (special administrative region). The Hong Kong Exchange has also survived its own “Black Monday” in 1987, thereupon was created independent regulatory commission, were stopped stock manipulations that supported rapid growth of the conducted transactions and level of credibility towards the Exchange [3]. As reported by WEF, in 2011 Hong Kong SAR got the leading position in the rating of the main financial centers having received 5.16 points out of seven possible. Mainly it happened due to the large number of the listing transactions at the initial public offering market, rising insurance market, low taxes and relative financial solvency. During 2011 the interest of the investors towards yuan as a method of the direct settlements avoiding US dollars increased, as determined in figure 1. Such settlement operations in yuan did not practically exist up to the middle of 2010 when financial institutions in Hong Kong SAR were permitted to open accounts in yuan. The overall cost of the transactions reached the record level of USD 500 billion in August 2011 [2].

The experts also emphasized such advantages of this metropolis as closeness to the economy of continental China and acquisition of the status of the yuan offshore center.

Fig.1 Quantitative characteristics of yuan usage

At the second half of 2014 there were four yuan offshore centers: Hong Kong, Singapore, London and Taiwan, as well as Frankfurt and Paris laid claim to that position. In late January 2015 there was signed a historical agreement between Switzerland and China on creation of offshore site in Zurich that shall provide the direct access to the Chinese financial market for investors.

Relations between China and Russia have several peculiarities. At the end of December 2010 Moscow Interbank Currency Exchange started bidding of currency pair renminbi (RMB) – rouble – one month later after China had started to trade this currency pair [4].

In October 2011 the Russian VTB, one of the top-ranked government banks, declared that it would henceforth take deposits in renminbi.

In December 2010 as a key step focused on currency diversification, VTB became the first non-Asian company at the new emerging market that started to issue dim sum bonds.

Since 2012 Russian companies have placed in Hong Kong yuan-denominated bonds (“dim-sum”, traditional Chinese dish is called the same) more than Chinese companies, - USD 482 mln. in dollar terms against USD 477 mln. as reported by Dealogic agency. In October 2012 another successive issue of bonds took place. In September 2012 the both parties agreed to use each other currency for settlement of the part of the Russian natural gas export to China [1]. The Russian President Vladimir Putin also expressed his approval concerning increase of roubles and renminbi use at settlements in trading between two countries upon signing at the end of 2011 the agreement on this matter with Wen Jiabao, chairman of the State Council of the People’s Republic of China.

Up to the end of 2012 the Chinese economy was undergoing some difficulties related to macroeconomic impact of some factors that encouraged transformation of production and provided services for the demands of the internal market. Eventually stabilized foreign economy achieved stable and growing domestic demand having obtained a result exceeding many expectations [5].

Higher level of credibility to the Asian stock market, capacity and possibility to protect own interests and receive economic benefits by the investors; favorable economic environment created in China and completion of construction of Shanghai World Financial Center where offices of more than 100 organizations and banks of different countries are placed shall definitely promote formation of yuan as the world’s reserve currency, as the first two stages have been completed.

Bibliography

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