The WSJ reports,"american companies are conducting a record amount of business in Chinese yuan, looking to benefit from cost advantages over dollar transactions.
Payments made in yuan by U.S. companies ranging from Ford Motor Co. to small clothing importers quadrupled over the past year to a record 2.6% of the global yuan total, according to the Society for Worldwide Interbank Financial Telecommunication, a financial-services firm that monitors international currency flows.
The U.S. recently passed Taiwan to become the fourth-largest hub for trade in the yuan outside mainland China, after Hong Kong, Singapore and the U.K., according to Swift.
The yuan is making inroads with U.S. firms now because it is becoming more cost-efficient to pay in the currency. American importers can often negotiate better prices with Chinese suppliers if they agree to use yuan to make a purchase. Chinese companies tend to increase prices when they settle trades in dollars as a way to offset potential exchange-rate fluctuations.
Transactions in yuan still represent a tiny portion of the more than $500 billion in annual trade between the U.S. and China. But companies and banks in both countries say the currency, also known as the renminbi, is starting to gain a foothold in America for the first time since China began loosening restrictions on trading the yuan outside China in 2009.
"More and more of our payments will migrate to the renminbi now that it's easier to do so," said Ryan Hershberger, Ford's treasurer of Asia-Pacific in Shanghai. "We think the benefits will accrue over time."
At the start of a two-day summit in Beijing Wednesday, Treasury Secretary Jacob Lew pressed China to further free up the yuan. U.S. officials have accused China of keeping the yuan weak to help exporters.
Widespread use of the renminbi by U.S. companies would be a milestone in China's push to make its currency more accessible world-wide because the U.S. is the world's largest economy and China's biggest trade partner. The yuan's liberalization is part of the government's long-term goal to allow free-market forces to play a bigger role in the economy, with the aim of shifting the world's financial center of gravity from the U.S. to China.
"If China in the long run is interested in having the renminbi challenge the dollar as a reserve currency, given the size of the U.S. economy, U.S. firms will have to get on board," said Mark Wu, a former World Bank economist who teaches at Harvard Law School.
U.S. companies need to use the yuan for a variety of reasons, including paying for imports from China or protecting against exchange-rate fluctuations. They also need to make yuan transactions if they establish an office in China to pay for things like salaries and office supplies there".
