Efforts needed on use of yuan in trade with Vietnam

By Bai Ming Source:Global Times Published: 2018/1/28 21:28:40

Illustration: Luo Xuan/GT



 

Given the huge trade volume between China and Vietnam, there seems to be relatively limited use of yuan in the trade settlement between the two countries. Recently, Hong Xiaoyong, China's ambassador to Vietnam, said that the bilateral trade volume in 2017 exceeded $100 billion, but apart from being used in border trade, yuan settlement is not widely used in general trade between the two countries.

As yuan cannot be effectively circulated in Vietnam, Chinese and Vietnamese enterprises still need to use large amounts of third-party currencies, such as the US dollar, for bilateral trade and investment activities.

This has increased the burden on both countries' enterprises and individuals, enlarged the risk of exposure to foreign exchange fluctuations, and has brought many inconveniences for the development of bilateral trade.

For instance, most Chinese companies offer quotations to Vietnamese clients in yuan, while the Vietnamese companies have to change money at banks and pay in US dollars.

The economic and trade cooperation between China and Vietnam has become increasingly close in recent years, and there is actually huge demand and an increasing trend toward yuan settlement in Vietnam. By the end of 2013, the amount of border trade settled in yuan reached about $15 billion. The inconvenience from the inadequacy of standardized yuan settlement in the trade between China and Vietnam is becoming more and more obvious.

At present, the yuan is playing a more and more important role among the world's currencies. The growth rate of Vietnam's foreign exchange reserves cannot catch up with the development of China-Vietnam economic and trade relations. Moreover, Vietnam's currency, the dong, is not widely used in international payments.

The advantages of yuan settlement will not only help to solve these problems; it will also help to promote stable, balanced and sustainable growth in bilateral economic and trade exchanges on a higher level.

In the long run, yuan settlement will promote the effective connection of Vietnam's "two corridors and one ring" plan with China's Belt and Road (B&R) initiative.

It will help to expand trade and investment between the two countries and other countries, as well as attracting more investment in infrastructure construction projects.

Broadly speaking, wider use of yuan in China-Vietnam trade could be seen as a small step toward the internationalization of China's currency. In recent years, the world's major financial institutions have greatly improved their profitability through the use of yuan in liquidation, settlement and financing, as well as in investment and the construction of offshore yuan centers. Yuan settlement could also be of great benefit for the prosperity of financial markets in Vietnam.

For China, the cross-border circulation of yuan is the basis for the currency's internationalization.

Only when this cross-border circulation of yuan with neighboring countries and regions is well established can the yuan finally achieve the goal of internationalization.

In 2017, China became Vietnam's largest export market for basa fish and shrimp. And the rapid development of the Vietnamese stock market in recent years has also attracted the attention of a large amount of Chinese investors.

After the yuan and Vietnamese dong become freely convertible, the trade and connections between Chinese and Vietnamese enterprises will become more and more convenient.

Investment from China will also further enhance the stability and activity in Vietnam's stock market.

Both countries are also set to step up interconnection of their financial infrastructure, as well as promoting the development of inclusive finance represented by community banks and electronic payment. I am convinced that with the promotion of the B&R initiative, yuan settlement will become more and more common in the trade between China and Vietnam.

Certainly, in order to allow yuan settlement to better serve trade between the two countries, further efforts should be made to improve the current non-standard settlement modes, to explore the establishment of a pilot zone for currency convertibility, and to construct a unified and efficient bilateral clearing system in the long run.

The author is a research fellow at the Chinese Academy of International Trade and Economic Cooperation. bizopinion@globaltimes.com.cn



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