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5 Feb, 2021 09:30

China partners with SWIFT to boost global use of yuan & cut reliance on US dollar

China partners with SWIFT to boost global use of yuan & cut reliance on US dollar

The People’s Bank of China has agreed a partnership with the global interbank settlement organization SWIFT, as part of an effort to internationalize the yuan and develop a digital Chinese currency.

The new entity, Finance Gateway Information Service, was registered in Beijing on January 16 with €10 million ($12 million) as incorporation capital, according to the National Enterprise Credit Information Publicity System, the Chinese government’s enterprise credit information agency.

SWIFT is the largest shareholder, with 55 percent of the capital owned via a Hong Kong subsidiary, while the China National Clearing Centre, a wholly-owned domestic settlement subsidiary of the PBOC, owns 34 percent.

“As a global neutral cooperative, SWIFT always acts in the interests of the entire member community,” SWIFT said in an emailed statement to the South China Morning Post (SCMP).“We have been part of China’s financial markets for more than 30 years … and, as we do everywhere we operate, we make adjustments as necessary to remain compliant with regulatory requirements.”

Also on rt.com China to expand tests of digital yuan in Beijing, Shanghai and Shenzhen

It added that “[The joint venture is a] compliance update in China in line with that approach that allows us to continue and strengthen our services to support our customers’ business goals in China.”

The joint venture emerged after concerns were raised that the US might cut off China or Hong Kong from the SWIFT financial payment network as a result of the Trump administration’s sanctions over the Hong Kong autonomy issue. Calls have also been growing from within China for Beijing to reduce its reliance on the US dollar by increasing the global use of the yuan amid worsening relations with Washington.

“It is true that China was trying to develop an alternative system [to SWIFT], but from a realistic perspective it has always been difficult for such system to gain traction, hence this new joint venture,” Oriol Caudevilla, management and strategy consultant at AirHelp told SCMP. “One of the main goals of this joint venture is to help internationalize the yuan.”

According to Paul Mackel, global head of currency research at HSBC, conditions are currently ripe for another push in yuan trade settlement and the resumption of yuan internationalization. 

READ MORE: De-dollarization in overdrive: Russia & China boost settlements in national currencies to 25%

Last August, China’s Ministry of Commerce announced that the digital currency would be tested in several new regions, including the Greater Bay Area, an integrated economic hub that takes in Hong Kong, Macau and nine Pearl River Delta cities.

China has been steadily expanding tests of its sovereign digital currency after it earlier revealed plans to get it ready in time for the 2022 Winter Olympics. Last year, online retail giant JD.com joined the program after authorities gave away 20 million digital yuan ($3 million) to Suzhou residents in one of its biggest “red envelope” lotteries.

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