China is continuing its quest to become a major reserve currency and compete with the dollar. Related to this, the Middle Kingdom took another step to boost the global prestige of the yuan, announcing on Monday that it plans to begin direct trading with the Swiss franc this week. Analysts note that this move can be seen as indirect pressure to boost China’s chances at receiving reserve-currency status from the International Monetary Fund.
The new direct Swiss Franc – Chinese yuan trading link will launch on Tuesday, according to a statement from the China Foreign Exchange Trade System. The Swiss franc will be the seventh major currency not required to convert into the U.S. dollar before being exchanged for yuan.
Of note, the franc-yuan rate will be permitted to fluctuate by up to 5% of a daily fixing, according to the statement from CFETS.
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Statement from People’s Bank of China
“This is an important step in strengthening bilateral economic and trade connections between China and Switzerland,” the People’s Bank of China noted in a statement published on its website on Monday.
The statement from the PBOC also claimed the direct link between the franc and the yuam will help save foreign-exchange costs and increase the use of the two currencies in trade and investment.
Of note, China’s yuan already trades directly woth the U.S. dollar, the British pound, the Australian and New Zealand dollars, the Japanese yen and the Russian ruble.
Today’s announcement from the PBOC comes as the IMF is getting ready to meet later this month to review its Special Drawing Rights. The executive board of the Washington-based institution will gauge whether the Chinese currency has fulfilled the criterion of being “freely usable.” The board rejected China’s bid for the yuan to join the IMF reserve currency basket back in 2010.
Of interest, the PBOC gave Switzerland a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program earlier this year, which means that up to 50 billion yuan raised offshore can be used to buy stocks or bonds in Chinese domestic financial markets.