China Said to Consider Yuan-Swiss Franc Direct Trading Link
(Bloomberg) — The People’s Bank of China is considering starting direct trading between the yuan and the Swiss franc, according to three people with direct knowledge of the matter.
The Swiss franc would become the seventh major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound, the Japanese yen and the euro. Direct trading means transactions between the yuan and the franc would bypass a conversion into the greenback. The people asked not to be identified as they aren’t authorized to speak publicly.
“It shows China’s commitment to yuan internationalization,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “The direct trading link can reduce transaction costs between the two currencies. However, the franc’s share isn’t as big as the euro so I won’t call it a milestone but a symbolic move.”
China is accelerating efforts to bolster global yuan usage before an International Monetary Fund review of its reserve- currency basket next month. Switzerland is competing for a slice of the offshore yuan business, which is dominated in Europe by London. The U.K. capital’s leadership is getting a boost before Chinese President Xi Jinping visits next week, having been selected to host yuan debt sales by both the PBOC and China’s Ministry of Finance.
The PBOC this year extended Switzerland a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program, which allows yuan raised offshore to be used to buy securities in China’s domestic markets. In 2014, the Swiss and Chinese central banks signed a three-year currency-swap agreement that can be used to borrow as much as 150 billion yuan.
The yuan ranked fourth for global payments in August, surpassing the yen, according to the Society for Worldwide International Financial Telecommunications.
