By Courtesy of Reuters.
Qatar will become the Middle East's first hub for clearing transactions in the Chinese yuan, in a step that could over the long run help Gulf oil exporting countries reduce their dependence on the U.S. dollar.
Industrial and Commercial Bank of China's Doha branch has been appointed as the clearing bank for yuan deals in Qatar, China's central bank said on Tuesday (Nov. 4th.).
"The signing of the MoU and the appointment of the renminbi clearing bank will increase the strong ties between China and Qatar and position Qatar as the regional centre for renminbi clearing and settlement," the Qatari central bank said.
Seeking to promote global use of the yuan, China has in the past two years appointed clearing banks for Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg and Seoul. Hong Kong and Macau had clearing banks earlier; Sydney is expected to join the list under a deal to be signed later this month.
A clearing bank can handle all parts of a transaction from when a commitment is made until it is settled; having such a bank can reduce costs and time taken for trading, boosting activity in a financial centre.
At present, the Gulf's wealthy oil and gas exporters rely heavily on the U.S. dollar; most of their currencies are pegged to the dollar, and most of their huge foreign currency reserves are denominated in dollars.
This is largely because their energy exports to China are mainly denominated in dollars, the currency of choice in oil and gas trade. The yuan is still believed to be years away from becoming a fully convertible currency, limiting its attraction for use in central bank reserves.
Although the yuan is now used to settle over 24 percent of China's total trade, up from 3 percent in 2010, according to estimates by HSBC, bankers believe the share for Chinese trade with the Gulf is much lower, at about half that level.
However, Qatar's deal with China suggests it is looking ahead to a time when that will change. As the Gulf's trade and investment ties with China boom, the yuan is becoming increasingly important to the region.
"It's a clear signal that there is demand from Qatar and some of the surrounding Middle Eastern countries," said Candy Ho, global head of yuan business development at HSBC.
There have been signs of a gradual rise in interest in the yuan among Gulf investors. Dubai's biggest bank, Emirates NBD , issued the Gulf Arab region's first yuan bond in 2012; in September this year, Agricultural Bank of China became the first Chinese institution to sell an offshore yuan bond in Dubai.
