People’s Bank of China announced that it has designated Agricultural Bank of China Limited, Dubai Branch, to clear yuan transactions in the United Arab Emirates, which would strengthen the growing economic ties between China and the Middle East, China’s central bank said Friday.
China’s third largest lender by assets has been selected as the second clearing hub in the Middle East for handling renminbi transactions, part of the Chinese government’s move to expand the worldwide infrastructure for making the yuan a global currency.
In 2015, Qatar became the first country in the Middle East to host a yuan clearing and settlement facility, with Industrial and Commercial Bank of China (ICBC) becoming the clearing bank. Qatar has become ICBC’s third-largest overseas clearing centre globally behind Singapore and Luxembourg, handling 350 billion yuan ($52.6 billion) in transactions since it launched.
The announcement by the UAE, the second largest Arab economy after Saudi Arabia, follows the IMF’s decision to admit the yuan into its basket of Special Drawing Rights (SDRs). Last year, the currency was used for 74 per cent of payments by value from the UAE to China and Hong Kong.
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Seeking to promote global use of the yuan, China has in the past two years appointed clearing banks for Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg and Seoul among many others.
A clearing bank can handle all parts of a transaction from when a commitment is made until it is settled which reduces costs and time taken for trading, boosting activity in a financial centre.
Hub for the Whole Middle East
In another sign of growing regional interest in the yuan, the Dubai Gold and Commodities Exchange (DGCX) launched its Chinese yuan futures contracts in December 2015. The step aimed to further facilitate the derivatives exchange’s participation in the movement of the Chinese currency market and enable traders to track CNH price returns whilst being able to settle in USD.
A clearing bank in the UAE could have a big impact on trade and investment in the Gulf because Dubai acts as the region’s top business center, handling flows of money and goods to countries in the six-nation Gulf Cooperation Council and beyond.
Fang Min, senior executive officer of Agricultural Bank of China (ABC), said in a previous interview with Reuters that “everyone thinks of Dubai as the hub for the whole of the Middle East, and it is the most appropriate place to set up an offshore renminbi market.”