China's central bank has signed a 35 billion yuan ($5.7 billion) currency swap deal with its Qatari counterpart, in a step towards expanding use of the Chinese yuan in a region long dominated by the US dollar.
The deal is expected to allow the two central banks to swap currencies if needed to ease trade and investment. Qatari investment institutions will now also get the right to invest up to 30 billion yuan in mainland Chinese securities, including stocks, bonds and bills, the People's Bank of China said in a statement on Monday.
The investment scheme, known as the Renminbi Qualified Foreign Institutional Investor (RQFII), was created in 2011 to let financial investors place some of their yuan holdings in China.
The United Arab Emirates signed a three-year currency swap arrangement with China in 2012 that was similar in size to Qatar's. Bankers say they believe there has been little if any use of it in practice, but it is a step towards long-term change.
Beijing has been promoting its currency to international investors, aiming eventually to turn the "redback" into a global reserve currency in line with the country's rising political and economic power.
Gulf Arab countries have lagged many other parts of Asia in using the yuan because their energy exports toChina are mainly denominated in dollars and most of their currencies are pegged to the dollar.
HSBC estimated last year that while 10 percent of China's international trade was conducted in yuan, the share was under 4 percent for Chinese trade with the UAE. The huge foreign reserves of the Gulf states are mostly kept in dollars.
However, economists believe there is room for that pattern to shift slowly in coming years as Gulf states gradually orient a greater share of their trade towards Asia. Qatar, which has some $43 billion in net foreign currency reserves and an estimated $170 billion in its sovereign wealth fund, is the biggest supplier of liquefied natural gas to China.
In April this year, China's central bank signed an agreement to help its Qatari counterpart invest in the Chinese interbank bond market.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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