A state-owned Chinese bank says its New York City branch has begun offering accounts denominated in China’s tightly controlled yuan in a new move to expand the currency’s global reach.
Bank of China’s announcement comes ahead of Chinese President Hu Jintao’s visit to Washington next week. The White House says President Obama will press U.S. complaints about China’s currency controls that critics say keep the yuan undervalued and swell its multibillion-dollar trade surplus.
Beijing is trying to reduce reliance on the dollar by promoting the yuan, also known as the renminbi, for trade and finance. It is promoting Hong Kong, a Chinese territory with its own currency, as an offshore market for foreigners to conduct yuan business separate from the mainland, which is kept isolated from global capital flows.
Hong Kong banks began handling yuan transactions with the mainland last year, and the World Bank and some foreign companies have sold yuan bonds.
Employees who answered the phone in the bank’s Beijing headquarters Wednesday refused to give any other details.
Bank of China Ltd. says customers of its Chinatown branch in New York will be allowed to trade yuan for dollars and can wire yuan to or from China.
In a statement on its website, the bank said account holders can exchange up to the yuan equivalent of $4,000 per day, with a limit of $20,000 per year, while the limits are half those levels for non-account customers.
“They are trying to expand the scope of people who can hold renminbi, and that increases demand,” said Daniel Hui, a foreign-exchange strategist for HSBC Corp. in Hong Kong.
Still, Mr. Hui said Chinese restrictions on money flows into and out of the mainland mean foreign customers who want to trade yuan will be limited to the Hong Kong market and currency available there.
China is the world’s biggest exporter and the second-largest economy behind the U.S., but its exporters receive mostly U.S. dollars for their goods. Being paid in yuan would help them eliminate uncertainty about exchange-rate changes. It also might help to promote China as the center of an Asian regional trading area.
China’s leaders have said they will eventually let the yuan trade freely, but say relaxing controls too abruptly would damage its financial system. They say a rapid rise in the yuan would hurt exporters, wiping out jobs.
Beijing promised more exchange-rate flexibility in June, and the currency has risen by about 3.5 percent against the dollar since then. Analysts expect a further 5 percent gain this year, but that is too low for U.S. manufacturers and others who say the yuan is undervalued by up to 40 percent. Last September, the U.S. House of Representatives passed legislation that would impose economic sanctions on China unless the country allowed its currency to rise more quickly. The measure was not taken up in the U.S. Senate.
Economists say the process of making the yuan an international currency on the level of the U.S. dollar, euro or yen will take years and depend on factors such as how many foreign companies want to use it.
China’s central bank governor, Zhou Xiaochuan, called in 2009 for a new global currency managed by the International Monetary Fund to replace the dollar for trade and storing reserves. Economists say such a change is unlikely, but the comments reflected Beijing’s unease about the dollar, which it uses for the bulk of its trade and to store an estimated one-half of its $2.5 trillion in reserves.
“The next big step will be sanctioning and regulating renminbi trading in other markets besides Hong Kong,” Mr. Hui said. “But that won’t happen in the near-term.”
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