On Sept. 21, the internationalization of the Yuan currency just took a big leap as the Federal Reserve Board confirmed an agreement with the Bank of China to begin operations of a new RMB clearing house in the United States.
Beginning in September of 2015, the U.S. began negotiations with China to facilitate the second largest economy being allowed to open a clearing house for the RMB currency, with its inclusion into the IMF's SDR being the primary catalyst behind this move.
“The People’s Bank of China (PBOC), the central bank, announced on Wednesday it has authorized Bank of China’s (BOC’s) New York branch to provide Renminbi (RMB) clearing services in the United States.
It is the first time for China to set up an RMB clearing bank in the United States.
The decision was made according to a PBOC memorandum of cooperation signed with the U.S. Federal Reserve Board, according to a statement posted on the PBOC official website.
As the world’s largest economy, the United States is a key destination for the RMB in its internationalization process.”
Today's move also makes the United States the 11th country to establish an RMB clearing house around the world, and North America the fifth continent to allow for Yuan based settlement in the global banking system. Other countries include: Hong Kong, Macau, Taiwan, Germany, France, Australia, Malaysia, Hungary, South Africa, and Zambia.
These clearing houses also do not take into account the City of London, which is acting as a primary bond dealer for the Renminbi, nor Russia, which has established an oil bourse that uses the Yuan as a compatible currency for the global purchase of oil and natural gas.
Since 2013, the Chinese Yuan has quickly moved into becoming a global trade currency, with a rise in market share from 1.9% in 2012 to a staggering 8.7% just one year later. And this percentage has only grown larger in the four years since the RMB passed the Euro in the world rankings of use as a global trade currency.
China has stated repeatedly that they do not desire to replace the dollar as the singular global reserve currency, but that the world should use a basket of currencies such as what is contained in the IMF's SDR. And this is likely to soon become reality now that the IMF has given Beijing the authority to begin internationalizing the SDR at the same time they are expanding the use of the Yuan throughout the world, eventually leading to a new currency model for trade that will end the 70 year reign of dollar hegemony.