China extends Yuan trading hours to satisfy European demand

The use of China’s yuan has no doubt gathered momentum on the international stage over the past couple of years. According to the latest SWIFT report, the Yuan overtook the Japanese yen to become the #4 world payment currency in August. Beijing, however, seems to have greater ambitions for the global role of the Chinese currency with the next step in the expansion set to be an extension of trading hours for the yuan.

According to a report by Reuters, citing sources with knowledge of the matter, China’s foreign exchange market will extend the trading hours for the yuan to 23:30 local time (15:30 GMT). The point of such a change is for the trading session to overlap with European trading hours, as the International Monetary Fund (IMF) calculates the FX value of SDR (special drawing rights) basket currencies at 12pm London time.

clock_london_beijingExtending the trading hours will support China’s case for the International Monetary Fund (IMF) to include the yuan in its currency basket.

Reuters refers to Joey Chew, Asian FX Strategist at HSBC in Hong Kong, who says:

“The IMF has mentioned that it had concerns on yuan liquidity during London trading hours because it calculates the FX value of SDR basket currencies at 12pm London time when there is no trading in China’s onshore market at present.”

At present, the China Foreign Exchange Trade System, managed by the central bank, closes at 16:30 local time (08:30 GMT).

Such timing has kept the onshore market out of sync with London, a major hub for offshore yuan trade. It has also given offshore markets a window to trade on policy changes unveiled after domestic markets are closed.

The UK is one of the major centers for yuan use, according to the latest SWIFT RMB monthly tracker. More than 50% of the RMB FX trading activity outside China and Hong Kong is done with the United Kingdom, which is a reflection of the strong position London has in the global FX market.

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