Business
Boost in Yuan’s Appeal for Trade Finance Driven by Cheaper Funding and Stronger EM Ties
The appeal of the yuan in trade finance is growing due to more affordable financing and stronger connections with Emerging Markets. According to Standard Chartered, the cost of funding for trade finance in yuan is approximately 3 percentage points less expensive than loans in the US currency.
Consequently, Karen Ng, the managing director and head of the China opening and yuan internationalisation advisory at the UK banking group, has reported that markets in Southeast Asia, Africa, and the Middle East have seen a significant increase in yuan-based trade finance this year, even reaching growth rates in the double digits.
"The need for yuan in trade financing is predicted to increase in the forthcoming years," she stated during a press conference in Hong Kong on Friday. She further mentioned that a significant number of the bank's business customers in regions such as Singapore, Malaysia, Indonesia, and Africa are opting for yuan loans to finalize transactions with their Chinese partners.
The attractiveness of the yuan as a financing currency remains unthreatened, even with the potential of the Federal Reserve beginning to reduce its target rate as soon as the upcoming week. The interest rates for borrowing in yuan continue to be over 3 percentage points lower than those for US dollar-backed trade financing, according to Ng.
As an illustration, the Shanghai interbank offered rate for a three-month period was around 1.85 per cent last week, as reported by the China Foreign Exchange Trade System. In contrast, the US dollar London interbank offered rate for a similar duration was notably higher at 5.2 per cent.
Discover more from Automobilnews News - The first AI News Portal world wide
Subscribe to get the latest posts sent to your email.