Dubai Has Its Eye On Clearing, Settlement
DUBAI is set to become the Middle East’s yuan clearing and settlement center by 2015, a United Arab Emirates government economist said on Tuesday.
Starting this year, major UAE banks will offer yuan bank accounts for corporate clients. This will be another step to boost the yuan’s role in the region, following a currency-swap agreement intended to promote bilateral trade, Nasser Saidi, chief economist of the Dubai International Financial Center, said on Tuesday.
SDRs are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund. They represent a claim to currency held by IMF members, for which they may be exchanged.
At present, SDRs can only be exchanged for US dollars, euros, sterling and the yen.
“China is now the world’s biggest exporter and second-largest economy. We need to have increased use of the yuan, not only in trade but also in finance.
“It is not just China that wants to internationalize its currency. The rest of the world needs the yuan to have a balanced economic structure,” he said.
China and the UAE signed a 35-billion yuan ($5.5 billion) currency swap agreement during Premier Wen Jiabao’s visit to the country in January, a sign of China’s growing political and economic ties with the Gulf region.
To promote the yuan’s internationalization, the government-owned Dubai International Financial Center has set up a payment system that allows clearing and settlements using the Chinese currency.
Dubai’s latest step has been to encourage its domestic banks to offer yuan accounts. Mashreq Bank PSC, National Bank of Abu Dhabi PJSC and Emirates National Bank of Dubai PJSC have taken steps in that direction, and according to Saidi, they will establish branches in Shanghai by early next year.
According to government figures, China-UAE bilateral trade has grown 35 percent annually over the past decade, reaching $35 billion in 2011. It is expected to reach $100 billion in 2015.
Yuan trading “now only accounts for 4 percent of our overall trade. Given the vast volume of bilateral trade, there is every reason for the scope to expand rapidly”, he said.
He said there are good prospects for expanded use of the yuan in financial transactions. China has developed the offshore yuan-denominated bond market (using so-called dim sum bonds), but Saidi said it’s necessary for the nation to nurture the domestic markets before fully opening up and allowing free capital movement.
“The 12th Five-Year Plan (2011-15) calls for flexibility of the yuan, but the most important thing is the sequence of the reform.
“I expect that by 2015, the debt markets in China should be equivalent to about 30 percent of GDP to hit around 31 trillion yuan,” he said.
As financially resourceful investors, the Gulf countries are seeking alternative high-yield investments beyond the European and North American markets. To that end, Saidi called for more Chinese companies to list in Dubai to diversify their investments into high-growth countries.
UAE companies, especially in the energy and real estate sectors, have shown an interest in listing in China once the international board in Shanghai opens, he added.
The internationalization of the yuan should proceed at its own pace and avoid rapid appreciation of the currency, according to Tse Yung-hoi, deputy chief executive officer of Bank of China International Holdings Ltd.
Tse said it’s critical to establish a good currency backflow mechanism and a well-rounded offshore center.
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