Yuan to play a bigger role in Central Asia

As many countries in the Eurasian corridor seek effective measures to improve their economies, senior officials from Central Asia and Pakistan's central banks are urging China to establish a solid regional financial cooperative platform to prevent and lower the damage created by developed economies.

Ashraf Wathra, deputy governor of the State Bank of Pakistan, said the global financial crisis has engendered long-term effects on commodity prices for Pakistan over the past several years and many of its enterprises are also having difficulties in gaining loans from both local and foreign commercial banks.

"There are solutions to tackle this problem that can and will address the needs of our country and allow Pakistani companies to obtain the access to apply foreign loans and other financial products, which will result in more investment activity and innovative services, if China and neighboring nations allow free capital movement and further cooperation between different banks," he said.

In comparison with Central Asia and Pakistan, China has a well-developed manufacturing foundation and financial service systems, Wathra said. "Establishing a regional financial service platform can be helpful to balance the regional economy and stimulate internal investment within the Eurasia passage, instead of only lending money to developed countries."

Wathra hopes China will set up more financial service institutions and settle bilateral trade in local currencies within the Eurasia passage. The implementation of a currency settlement agreement will promote more currency exchanges between different markets. A similar method has already been implemented: The current bank coordination mechanism between member nations of the Shanghai Cooperation Organization has had a significant effect on improving a number of sectors in Russia and Central Asian countries, including energy, infrastructure, transportation, logistics, retail, education and tourism.

Yusufiyon Jamshed, deputy chairman of the National Bank of Tajikistan, said Central Asia, Mongolia and Russia must act quickly and improve regional financial stability through a number of approaches with China, including signing more agreements to allow different regional currencies to be directly converted, offering simplified loan policies and setting up bank branches.

"With upcoming shifts driven by China's trade, industrial and investment activities, it will assist our companies, especially small and medium-sized enterprises, to gain loans from China through regional financial cooporation and favorable policies," Jamshed said.

He feels that holding a certain amount of yuan assets would help Central Asian governments "ease their heavy dependence on the US dollar and build a fair trading environment between China and Central Asia".

As the dominant reserve currency in the world, the US dollar is mostly used in global trade transactions and for invoicing goods and services. The majority of transactions between Chinese and Central Asian companies are still based on its exchange rate.

"But to lower the risk caused by unexpected economic crises, quantitative easing measures and further depreciation of the US dollar, closer financial cooperation can further protect our energy, commodity, agricultural product and human resource industries," Jamshed said.

"If you look at the currency rate risk management of the reserve portfolio, the renminbi has performed well in recent years because it is supported by China's enormous international reserves," said Huo Jingtai, a professor at Xinjiang University of Finance and Economics in Urumqi.

He said other central Asian countries can also become more competitive if their regulations changed and further developed, because no one wants to miss the opportunity of attracting Chinese banks to enter their markets.

Trade between China and Central Asia exceeded $40 billion in 2012. China has become Central Asia's biggest trading partner and one of the major investors in the region. Countries such as Kazakhstan and Tajikistan are also planning to build new industrial zones to develop these industries over the next four years. Therefore, the region needs strong financial support to promote its agriculture, manufacturing, high-tech and renewable energy industries.

The Chinese government has an open attitude toward currency swap arrangements with the central banks in the Eurasia passage and encourages businesses on both sides to settle bilateral trade and make direct investments in local currencies.

Chinese banks have managed to establish their presence and enlarge influence in these countries. China Development Bank, Bank of China and Industrial and Commercial Bank of China have all established branches or representative offices throughout the region.

Pan Gongsheng, deputy governor of the People's Bank of China, China's central bank, said China will continue to open itself to the nations to its west, not only conducting infrastructure projects and helping with communication construction but also negotiating with different central banks in Central Asia to carry out more flexible financial reforms.

Pan said support will also be given to Chinese financial institutions to provide loans denominated in yuan to partner countries in the region. China is also willing to see central banks from these countries investing in China's inter-bank bond market and including yuan in their foreign exchange reserves.