SYDNEY -- From South Korea to India, from Africa to Latin America and Europe, businessmen and central bankers are now waiting intently to gain access to the yuan market as the eurozone crumbles under the massive weight of debt and the US economy marks time.

While China and the UK have been in talks in recent months to develop London as a yuan of shore market following the success of Hong Kong, Singapore and Malaysia are vying to become such centers in Southeast Asia as well.

Discussions are ongoing, a Singaporean analyst discloses to China Daily Asia Weekly on condition of anonymity. “Singapore does not want to be left out on this, but it is taking time,” the analyst says.

The greatest benefi t of RMB trade settlement is that it of ers business community stability in forex rates,
the analyst explains.

“Today importers and exporters of Chinese goods can use RMB, instead of US dollar. Apart from businessmen, Chinese banks and foreign banks which are quick to grab opportunities are expected to be benefi ciaries when the RMB becomes fully convertible.”

Both Singapore and Malaysia have well-established fi nancial markets, as well as close commercial and regulatory relationships with China.

Bloombe rg  r epor ted  recently that Malaysia’s state investment company, Khazanah Nasional has started taking orders for the sale of  the world’s fi rst yuan-denominated Islamic bonds.

On Nov 9, Austria’s central bank signed a deal with the People’s Bank of China to enable it to make investments in the yuan.

It has been reported China has  entered swap agreements totalling more than one trillion yuan with 14 countries including Singapore and India.

The South Korea in central bank and the People’s Bank of China recently   signed   an   agreement expanding their currency swaps from 180 billion yuan to 360 billion  yuan ($56 billion).

Nigeria, Africa’s largest oil producer, is diversifying its foreign exchange reserves to include the yuan, and will
have yuan-denominated trade settlements in oil deals.

Some of the world’s biggest mining companies such as Australian  giants BHP Billiton and Rio Tinto are said to be looking at settling trade accounts with China in yuan rather than US dollars.

China, which a little over a decade ago accounted for less than 5 percent of Australia’s exports, is now its largest trading partner.

West Australian mining group Fortescue Metals, which recently announced full year net profit of $1.02 billion, says 90 percent of its business is done in China.

“Yes, we’d like to do our settlement in yuan,” a spokeswoman for the group tells China Daily Asia Weekly. “It is something we are actively looking at, but a lot of work still needs to be done on the regulatory side in China before it becomes feasible.”

Analysts say the financial crisis gripping Europe is already having a signifi cant knock-on ef ect in Asia and will, more than likely, accelerate the accession of the yuan to major global currency status sooner rather than later.

Suhaimi Ilias, regional economist with Maybank Investment Bank in Kuala Lumpur, says it is only a matter of time before the yuan becomes fully convertible. Although China has not officially put a date on it, some officials have
been quoted as saying 2015.

“I don’t think that has been set in stone … at least not officially ,” says Daniel Hui, senior FX strategist with
HSBC in Hong Kong. “But with the way things are going in Europe, convertibility may come sooner rather than later,” he says.

Analysts say while in the immediate term, trade settlement in yuan will help mitigate exchange risk and reduce transaction costs for enterprises trading with China; in the longer term, it is expected to boost regional trade.

Making the yuan an international currency would be in China’s medium-and-long-term interests as well, “as it reduces the need for holding large amounts of foreign currency”, Gregory Chin, a senior fellow at the Centre for International Governance Innovation (CIGI) in Canada, said recently.

“Given China’s prominence in world trade, in manufacturing, and increasingly in financing, it would be natural for the renminbi to become one of three or four major international currencies in the world economy,” he said.

“The challenge for China is to make sure (renminbi) internationalization is a force of stability in an increasingly complex, even fractured, international monetary system – and does not destabilize (the situation) further.”

Plans to make the yuan a convertible currency began well before the eurozone crisis with the introduction of “dim sum” bonds last year, and the gradual loosening of the peg to the US dollar, which has seen the yuan appreciate against the dollar by 4 percent so far this year.

“A lot of yuan-denominated business is already being done in London. But all the trading has to be settled in Hong Kong,” says Hui.

“There is also a lot of trade related business being done in yuan, especially two-way trades. By cutting out the dollar (US) and settling in yuan, you avoid the currency risk,” he adds.

Analysts say the rise of the yuan meets the demands of central banks and private investors for alternatives that will enable them to diversity their investments and balance risks.

Ilias of Maybank Investment Bank says a number of factors contributed to China’s launch of its yuan trade settlement back in 2009.

“It was partly in reaction to the US dollar liquidity crunch following the global financial crisis, China’s growing economic stature and the need to re-balance its own currency composition of huge external reserves,” he says.

The aim, he adds, was to essentially reduce the overdependence on the US dollar as the major settlement currency. “There was a view that the US was pursuing a weak dollar policy in order to spur recovery and force a global rebalancing.”

China launched a pilot program allowing trade in the yuan between China, Hong Kong and Macao and countries within the Association of South East Asian Nations (ASEAN).

The   initiative  wa s ,  howe ver, restricted to fi ve mainland cities and  370 designated Chinese enterprises.

“In Malaysia we started in November 2009 with Maybank being one of the local participating banks,” Ilias says.

“Basically the mechanism is that ASEAN banks open yuan clearing accounts with designated Chinese banks such as the Bank of China or the Industrial and Commercial Bank of China (ICBC). The accounts are used for the payment and receipts of exports and import proceeds. This allows customers to make payments for their imports in yuan and receive proceeds for their exports in yuan,” he explains.

“But I gather progress has been very slow in setting up the mechanisms within the 10-member ASEAN. Malaysia is working towards this and the ICBC has just been given a license to operate here. The Bank of China has been operating here for some time. I would not be surprised if we have something formal in place by the end of the year,” Ilias says.

The Bangkok Bank recently introduced a full range of services in the yuan, including letters of credit, funds transfers, currency exchange and foreign-currency deposit services.

Southeast Asian economies such as Thailand should be among the biggest beneficiaries of the strengthening yuan, which will be a natural consequence of its growing use as a trading currency. Trade between China and ASEAN is growing by around 20 percent a year and already tops $100 billion. A stronger yuan will help shift the balance of trade towards Southeast Asia, whose members’ currencies appreciated when the yuan was pegged to the dollar, as without this pressure their exports will become comparatively cheaper.

Already there is strong interest among Southeast Asian economies in trading using the yuan, which some expect will become one of the top three global currencies alongside the dollar and the euro.

In the fi nal declaration from the recent G20 meeting in the southern French resort town of Cannes, it was agreed that the International Monetary Fund’s Special Drawing Rights (SDR) basket of currencies should be reviewed.

The declaration said the basket should “refl ect the role of currencies in the global trading and financial system and be adjusted over time to reflect currencies’ changing role and characteristics.”

Currently the SDR is made up of the US dollar, Japanese yen, euro and pound sterling.

Nobel Prize laureate Robert Mundell, known as the “father of the euro”, said in Beijing recently that the SDR will play a signifi cant role in the post-crisis global monetary system.

He also backed French President Nicolas Sarkozy’s proposal to include the yuan in the SDR basket.

The inclusion of the yuan would better reflect the new realities of global economics, Mundell was quoted by Xinhua as saying.