Futures trade boosts yuan's global role

Moscow latest center to offer currency derivatives as hedging, settlement tool

The yuan's internationalization is progressing as futures contracts for the currency are launched in the markets of some of China's trading partners.

The derivatives offer companies the ability to hedge the risks of yuan-denominated transactions.

The Moscow Exchange has launched rouble-yuan futures trading, driven by the growing volume of settlement between the two currencies and the rising demand for hedging tools.

Andrey Shemetov, the Russian exchange's deputy chief executive, said that the contracts are part of the exchange's effort to offer a full range of yuan instruments and support bilateral trade.

Media reports have said that South Korea will launch won-yuan futures on its stock exchange in June. China is already the country's largest trading partner.

South Korean technology company Samsung Electronics Co reportedly plans to settle transactions between its headquarters and Chinese subsidiaries through the yuan-won market, which was established in December.

Daily turnover in South Korea's yuan-won market has reached the equivalent of $950 million, although most of the transactions represent local banks acting as market makers, media reports in South Korea said.

Some analysts said that the US dollar may become increasingly sidelined in China's foreign trade as its major trading partners are bypassing it to seek direct currency trading with the yuan.

Zhao Xijun, deputy dean of the School of Finance at Renmin University of China, said that derivatives based on the yuan's exchange rate constitute an important market component of the government's plan to make the yuan an established international currency.

"Currency futures will play a price-discovery role in the yuan's market value. So it is important to (offer a sufficient range of) derivatives to put the yuan on equal footing with other major international currencies," Zhao said.

But while yuan futures trading is on the rise in foreign markets, there is no such product available in the Chinese mainland, although the yuan is being increasingly used in China's trade.

Yuan-denominated trade settlements reached 6.55 trillion yuan ($1.05 trillion) last year, according to data from the People's Bank of China.