Yuan tipped to replace the dollar

China’s yuan is set to usurp the US dollar and the euro as the trading currency of choice in Southeast Asia, experts say.

Thanks to zero tariffs, preferential trade policies and geographic advantages, trade between China and Asean has increased at a steady pace over the past decade, with China replacing the United States as the ten-member bloc’s biggest trading partner. In 2010, China signed an Asean-China Free Trade Area agreement with the six original Asean members and accounted for 11.3% of Asean’s total trade, compared with 9.1% for the US. Last year, Asean overtook Japan to become China’s third-largest trade partner, behind the European Union and the United States.
Driven by market demand, the volume of trade between China and Asean is expected to exceed $500 billion by 2015, the year in which Cambodia, Laos, Myanmar and Vietnam will join the preferential trade agreement.
Bolstering trade between the two regions indicates a growing economic interdependence and the likelihood that the yuan could replace the greenback and the euro in trade, financial and money-exchange dealings throughout Asean, which has a combined GDP of
$1.8 trillion.
“In the long run from 2015 onwards, trade with Asia will largely increase under the ACFTA agreement, which will influence the use of the yuan and the local currencies,” said Phathanaphong Phusuwan, a senior official of the Bank of Thailand during a seminar on Thai-Chinese trade, investment and finance relations. “The yuan is then a good alternative for international trade in the future.”
While the yuan’s long-term prospects look promising in Southeast Asia, where China has eased restrictions and some commercial banks offer yuan-based services, its role will remain limited in the short and medium term.