(Tokyo) — China and Japan will promote more use of their local currencies in bilateral trade and investment agreements as global trade uncertainty has boosted foreign-exchange instability and the expense of using third-party currencies, the Chinese central bank official said Thursday.
Supporting local currency settlements in trade and investment could not only enable companies to better manage exchange rate risks and save exchange costs, but also help expand the financing channels of investors and diversify their investment portfolios, a forum in Tokyo told Huo Yingli, director of the People's Bank of China's (PBOC) macroprudential policy office.
"We are eager to strengthen cooperation with Japan's central bank and (other) related policy departments in the face of a remarkable historical opportunity to meet market demand and create a good policy atmosphere to facilitate bilateral local currency settlements," Huo said.
Her remarks come amid a continuing thaw between Asia's two largest economies that began last year, the 40th anniversary of their peace and friendship treaty being signed.
Chinese Prime Minister Li Keqiang visited Tokyo in May 2018 and Japanese Prime Minister Shinzo Abe visited Beijing five months later, marking the first high-level official visits in seven years between the two countries. Because of their close economic and trade relations and continued high-level official contact, Huo said, there is currently enormous potential for local currency settlements between China and Japan. While China is Japan's largest trading partner, she added that Japan is China's second-largest trading partner and its largest foreign investment source.
In 2017, the annual bilateral trade of the two neighboring countries exceeded $300 billion and, according to Chinese customs data (link in Chinese), increased to nearly $328 billion the following year. Moreover, Japan is China's only country with a cumulative investment of over $100 billion. According to information (link in Chinese) from China's Ministry of Commerce, the volume had reached $113.7 billion as of May.
At the market level, China-Japan cross-border yuan transactions and transfers have been on the rise, up 7 per cent year-on-year to nearly 500 billion yuan ($71.2 billion) in the first 10 months of this year, Huo added.
On a policy level, Huo said good results had been achieved by China and Japan's monetary cooperation. As an example, she cited the bilateral local currency swap agreement signed during Abe's visit to Beijing in October 2018 by the PBOC and its Japanese counterpart, which marked another milestone in their cooperation.
In Asia, bilateral currency swap arrangements date back to May 2000 when the Chiang Mai Initiative was launched in that northern Thailand city by financial authorities in China, Japan, South Korea and the 10 Southeast Asian Nations Association countries. As a response to the Asian financial crisis of 1997, the initiative aimed at building a network of bilateral currency swaps to better manage the region's liquidity shortage issues.
Tags : local currency, trade and investment, trading partner, transactions,