The Asian Development Bank (ADB) has decided to include the renmibi and the Indian rupee in its trade finance progamme to fill a liquidity gap.
The ADB will now provide guarantees and loans to banks in these two Asian currencies, as well as US dollars, yen and euros, to support the expected rise in intra-regional trade transactions settled in renmibi (Rmb) and rupees (Re).
“This move will encourage the use of regional currencies in trade and reduce reliance on the US dollar as a settlement currency, which is in short supply in many countries,” says Steven Beck, head of the ADB’s Trade Finance Programme. “It advances our promotion of trade in the region, which is crucial for boosting job creation and economic growth.”
The bank expects intra-regional trade in Asia to represent at least half of all foreign trade for Asian countries within the next 10 years, with a decline in the US dollar’s dominance (currently 90% of all foreign trade transactions in Asia).
The ADB’s Trade Finance Programme has supported over US$10.6bn in trade since 2009, and its volumes have increase by 40% in the first half of 2012 compared to the same period last year. It was set to expire by the end of 2013, but the ADB has decided to extend it for an indefinite period of time to compensate for the increasing gap in trade finance caused by financial deleveraging, tight credit supply and low risk appetite from banks.