18.7.12

The Rupee & The Renminbi

Reflecting the growing might of China and India in the global economy, the Asian Development Bank (ADB) said it would start supporting deals denominated in rupee and renminbi under its Trade Finance Programme (TFP) in view of the expected rise in inter-regional transactions using the two currencies.
“ADB’s Board of Directors today approved the inclusion of renminbi and Indian rupee in the TFP, which fills private sector market gaps for trade finance by providing guarantees and loans to banks to support trade. Over 50% of TFP’s portfolio has supported intra-regional trade and this move will bolster TFP’s ability to further enhance its support for trade within developing Asia,” the Manila-based multilateral body said in a statement.
Since 2009, the US dollar, the euro and the yen were the currencies in use under the programme that has provided support of over $10.6 billion.  
Government officials said the move is also expected to benefit bilateral trade between the two Asian giants by cutting down on exchange rate fluctuations and transactions costs as traders will not have to use a third currency.
Already, BRICS (Brazil, Russia, India, China and South Africa) have signed an agreement to provide credit in local currency. There is also discussion on a common Asian currency, although it is at a very early stage and is unlikely to come anytime soon given the concerns over the artificial value of renminbi. By not permitting a free float, China is accused of undervaluing its currency to boost exports.
The developments, however, come at a time where there is growing debate on whether dollar will be the dominant currency in the years ahead given the scar that the financial crisis has left on the US economy. 

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