Yuan’s stability will help facilitate growth in trading between nations

Yuan’s stability will help facilitate growth in trading between nations

Why trading between nations needs a stable currency?

When it comes to trading between nations, it is important for the currency to be stable. Else, it is so hard to price the goods and one party could lose when the currency exchange is very different from the time or ordering to the time of delivery. This is why every country strives to ensure its currency is stable. This is also why most trades would use the same currency and typically it’s the US$.

China’s growth is important to Malaysia and many other countries

China’s growth is no longer like previously. Recently, its growth was also hampered by the tariff war between them and the USA. Slightly earlier and until today, its real estate market is also not healthy. Why is China’s economy so important to many countries? Well, this fact may explain a little. China is the largest trading partner for 13 countries, such as Australia, Brazil, Germany, Japan, South Korea, Malaysia, and Thailand. Yes, MALAYSIA’s largest trading partner is China. If China’s not growing, Malaysia’ growth would slow too unless other countries could take up the slack. One good news is as below:

Article in nst.com.my China’s central bank pledged on Friday to calibrate the intensity, timing and pace of monetary policy based on economic conditions to support stable growth.

The People’s Bank of China said it will maintain the yuan exchange rate “basically stable at a reasonable and balanced level,” and promote the currency’s international use, according to a statement following a meeting on implementing directives from a key Communist Party plenum this week.

The bank said it would strengthen monitoring of systemic financial risks and support efforts to resolve risks in local government financing vehicles and the real estate market. Article in nst.com.my

China’s central bank’s actions are critical to the world economy

It’s not just these 13 countries above yeah, it’s actually within the top 3 largest trading partner to 157 other countries and regions. (Source: cgtn.com). If China slows, 157 other countries will also feel the effects too. They could import less and this will impact the countries which are exporting to China. Thus, when the Central Bank of China calibrates its monetary policy to maintain the yuan exchange rate, it is also facilitating a bigger usage of yuan as the trading currency too.

Is China and Malaysia trading using the yuan?

Actually the main currency being used for the trading between China and Malaysia remains to be the US$. However, it is growing pretty fast. For 2025, “In the first quarter of this year, cross-border RMB transactions between China and Malaysia amounted to 102 billion yuan, growing 27 percent from a year earlier.” Source: gov.cn. At the same time, Bank Negara Malaysia is also enabling the settlements via Yuan as well. “
BNM has a currency swap agreement with the People’s Bank of China to ensure a steady supply of RMB in the Malaysian financial market for businesses.” Source: bnm.gov.my 

Is the yuan becoming ever more popular?

Yes. It’s still the 5th most used currency, behind the Pound Sterling but it’s nearing the 4th most used currency already. Do take a look at the convergence.

The less volatile a currency is, the better it is for any trading settlement

Currency exchange is always a risk in trading. Fluctuations up and down could mean either a profit or a loss every time a transaction happens. This is why nations always seek to have a currency which is strong and does not fluctuate that much. Currently, that global currency which is by far most used and most popular would be the US$.

Happy learning.

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