Yuan marches forward in global settlements
Back on Dec 6, E-ter Network based in Yiwu, Zhejiang province, received a payment from a Saudi Arabian client for daily necessities such as storage boxes, water bottles and handbags.
It took less than six hours for the money to reach the company's bank account, said Wu Jiajia, a member of the company's top management, much faster than he originally expected.
"The transaction was initiated at about 5 pm Beijing time, and sometimes after 10 pm, we got a phone message notifying us of the arrival of the payment," Wu said.
"Over 1.6 million yuan ($218,722)," he added.
The amount may seem small. During the year 2022, E-ter Network handled exports of goods worth more than 150 million yuan to Saudi Arabia.
But it was the first cross-border business transaction between Yiwu and the Middle East nation — and indeed between China and the Arab world — settled in renminbi, the Chinese currency.
"It means we can conduct more business with our clients in Saudi Arabia directly in yuan," Wu said.
A county-level city with a permanent population of a little more than 1.86 million, Yiwu, located some 140 kilometers from the provincial capital of Hangzhou, is better known as the world's capital for small commodities, selling a wide range of consumer goods, ranging from daily use items to sports-related products.
Statistics from Yiwu's commerce bureau indicate that the city now sells more than 2.1 million types of products to over 230 countries and regions, and some 65 percent of Yiwu's trade in goods is for export.
The highly export-oriented business nature and the city's close trade connections with emerging economies like the Arab world, Africa, Southeast Asia and South America, have made Yiwu a key testing ground in China's efforts to internationalize its currency.
In December 2012, Yiwu became the first Chinese city to launch a pilot reform program of cross-border renminbi settlement for individual traders and small businesses, effectively lifting restrictions on the amount of yuan settlements they were previously subject to.
Chinese businesspersons in such cities were — and are — permitted to exchange the equivalent of no more than $50,000 in foreign currency every year, as per relevant regulations.
By the end of December 2013, a year after the pilot scheme was put in place, figures from the local branch of the People's Bank of China — the country's central bank — show that 16 banks in Yiwu had opened individual cross-border trade renminbi settlement business services. They handled 12,000 transactions for 1,693 market entities, with the total amount reaching 8.6 billion yuan and covering 76 countries and regions.
Roughly a decade later, in the year 2022 alone, some 176 countries and regions conducted cross-border renminbi settlements worth 56.54 billion yuan with Yiwu traders, a year-on-year increase of 56.23 percent, and close to 61 percent of the settlements, or 34.42 billion, were for individuals, a year-on-year increase of 45.09 percent.
With its exports standing at over 430 billion yuan last year, this means that over 13 percent of the deals in Yiwu were done in renminbi, with more expected going forward.
Cross-border yuan settlements have been on the rise, particularly over the past few years, said Zhang Wenjing, deputy general manager of Yiwu Pay, a third-party platform that helps facilitate cross-border payments for the city's merchants.
"Since the official launch of Yiwu Pay this February, more than 16,000 merchants in the Yiwu International Trade Market have opened accounts at Yiwu Pay," Zhang said.
In other words, about 30 percent of the merchants who operate 75,000 stores using the market have signed up for the service.
"Cross-border RMB settlements valued at over a billion yuan have gone through our platform, with the volume expected to surge to more than 7 billion yuan at the end of the year," she added.
Indeed, the first cross-border renminbi payment from Saudi Arabia to China was sent through Yiwu Pay.
Innovations like Yiwu Pay, which has partnered with over 400 banks and financial institutions in more than 120 countries and regions, and supports 20 major currencies for international settlement, have made cross-border renminbi settlement a more attractive and viable option.
Services provided by traditional channels such as SWIFT and banks are increasingly ill-equipped to meet new market needs, such as the exploding development of cross-border e-commerce, said Wu, from E-ter Network.
SWIFT (the Society for Worldwide Interbank Financial Telecommunications) is an international payment network.
"We usually have to wait for at least several days, sometimes even weeks, before receiving or making a cross-border payment through traditional channels," Wu said. "Now it takes only a few hours or minutes to finish the transfer, and we don't have to worry about exchange rate fluctuations, either."
An added appeal is that these innovations have provided more security for cross-border yuan settlements.
Yang Fang, a vendor from the Yiwu International Trade Market, once had her bank account frozen after a payment for goods worth 40,000 yuan was transferred to it from a Vietnamese customer.
Although part of a routine anti-fraud and anti-money laundering investigation conducted by the authorities, the incident still affected her business, as a large amount of the money in the account was made unavailable for a three-month period.
While she understood the necessity of the procedure and fully cooperated with the investigation, Yang, like many other traders who have had similar experiences, said she "just hoped to have a more secure platform for merchants to ensure the normal and unhindered flow of legitimate funds".
In addition, external factors play an important role in spurring the expansion of cross-border renminbi settlements.
"After the Russia-Ukraine conflict began, our Russian clients started making payments in yuan, sporadically at first, and then by May this year, they began to settle every deal in renminbi," Zhang Li, who owns a foreign trade company exporting hardware and power tools in Hangzhou, told Zhejiang-based Tide News.
Settling business in yuan is apparently a "great thing" for Zhang, who has been pining for it since she started working in foreign trade 14 years ago.
"Now we don't have to convert roubles into dollars and then into yuan — and vice versa," she said. "It is more convenient and stable."
Zhang's experience and sentiments have been shared by other traders in Yiwu.
"Of course, we prefer to conduct transactions in the local currency," said Ali Maged, a 35-year-old Yemeni who first came to Yiwu in 2007 and later set up his own trading company in the city.
"While we can't force the clients to use a particular currency," he said, "more and more are choosing to settle in renminbi, especially those from countries affected by U.S. sanctions, such as Russia and Iraq."
Local authorities in Yiwu have also stepped up efforts and come up with new initiatives to further boost cross-border yuan settlement. In late May, a China-Africa renminbi settlement center was inaugurated in the city to expand cross-border transactions between the two sides, as Yiwu's imports and exports to the continent hit 49.38 billion yuan in the first half of 2023, up 31 percent year-on-year.
Meanwhile, China has continued to encourage the use of the yuan all over the world and signed bilateral currency swap agreements with more than 40 countries and regions.
SWIFT announced recently that the Chinese currency's share in global payments had increased for five consecutive months to 2.77 percent in June, the highest level since January 2022.
The latest research report released by the International Monetary Institute of Renmin University of China showed that compared with 2021, the Renminbi Internationalization Index grew by 18.08 percent at the end of 2022 and will keep rising.
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