Kazakhs Seek Agreement on Tenge-Yuan Trade, Swaps

Dec 23. Bloomberg

By Nariman Gizitdinov and Emma O’Brien

Kazakhs Seek Agreement on Tenge-Yuan Trade, SwapsKazakhstan is seeking to become the second country bordering China to start settling trade deals in local currency.

The National Bank of Kazakhstan said today it would try to speed up developing yuan-tenge swaps that could give companies in both countries a way to access each other’s currencies, according to an e-mailed statement. The two nations have agreed to set up working groups within their central banks to come up with ways of encouraging importers and exporters to make payments in local currency, the statement said.

Russia became the first country outside of Asia to offer direct exchange of yuan when Moscow’s Micex bourse started yuan- ruble trading on Dec. 15. Russian companies, including sporting- goods retailer Sportmaster, have started settling deals in yuan as both countries seek to minimize the dominance of the dollar in their commerce. In Malaysia, where investors can exchange the local ringgit for yuan, the exchange that sets the global benchmark for palm oil also accepts yuan.

“China has become the biggest destination for Kazakh exports, some 8 to 10 percent of Kazakh exports end up in China,” Ivan Tchakarov, chief economist for Russia and the former Soviet Union at BofA Merrill Lynch Global Research, said by phone in Moscow. “It makes sense for them to settle in their own currencies, it’s cheaper and it’s less risky in terms of currency fluctuations.”

Main Exports

Chinese exports to Kazakhstan amounted to $895 million in October, up $304 million on the previous year and double what the world’s fastest-growing economy exported to Denmark, Israel, Switzerland and New Zealand. Kazakhstan, which has about 3.2 percent of the world’s oil reserves, according to BP Plc, exported $886 million worth of goods to China in October, according to the latest data from China’s customs office.

Crude oil accounted for 53 percent of Kazakhstan’s exports to China in 2008. Oil and gas pipelines, drilling machines, cement and metals are the Central Asian nation’s main imports from China, according to Kazakhstan’s national investment agency, Kaznex Invest. Standard & Poor’s lifted Kazakhstan’s foreign and local currency credit ratings one level today and the country’s outlook to stable, according to an e-mailed statement.

‘Serious Step’

In the wake of the global financial crisis, China and Russia have called for the dominance of the dollar in global trade and finance to be diluted. Prime Minister Vladimir Putin said Nov. 23 the use of local currencies in trade between Russia and China would be a “serious step” toward improving trading relations between the two major emerging economies. Chinese Premier Wen Jiabao said in March he was “worried” about holding U.S. assets.

Yuan-ruble trade could become as big as the $48 billion trading relationship between China and Russia, Micex president Ruben Aganbegyan said in a Dec. 15 interview in Moscow. As much as 30 percent of all Russian trade with China will be conducted in yuan within five years, according to Oleg Radichkin, HSBC Holdings Plc’s head of development and sales for bank products in Moscow.

The ruble was little changed at 46.14 per 10 yuan at the end of today’s one-hour trading session in Moscow today.