Beijing, November 21, 2023 (PAKONOMY): In a significant development, the People’s Bank of China and the National Bank of Cambodia have formally entered into a memorandum of cooperation. This strategic move aims to establish a yuan clearing arrangement in Cambodia, further solidifying economic ties between the two nations.
Strengthening Yuan’s Global Influence
China’s proactive efforts to boost the yuan globally have been underscored by this collaboration. Since 2009, China has strategically sought to reduce reliance on the U.S. dollar in trade and investment settlements. The recent agreement with Cambodia aligns with broader initiatives to position the yuan as a major global reserve currency.
Expanding Network: Yuan Clearing Deals
Over the past two years, China has extended its reach through similar yuan clearing agreements with countries like Brazil, Kazakhstan, Laos, and Pakistan. These initiatives not only streamline trade transactions but also contribute to the yuan’s growing influence on the international stage.
Currency Swap Agreements
China’s commitment to economic collaboration is evident in the approximately 40 currency swap agreements it has signed, especially with emerging markets. These agreements act as crucial credit lines, fostering financial cooperation. A recent highlight includes China and Saudi Arabia signing a local currency swap agreement worth $6.93 billion.
Impact on Financial Transactions
The yuan clearing agreement is poised to simplify financial transactions between Cambodian firms and their Chinese counterparts. This development is expected to enhance efficiency in cross-border financial dealings, contributing to economic growth.
Exploring Bilateral Trade and Exports
According to United Nations COMTRADE data, the two-way trade between China and Cambodia reached an impressive $16.3 billion in 2022. The leading Chinese exports to Cambodia included knitted or crocheted fabric goods, followed by electronic equipment and machinery for plastics manufacturing.
Cambodia’s Strategic Partnership with China
Despite being one of Asia’s economically challenged countries, Cambodia has strategically positioned itself as a significant ally to China. Recent years have seen Cambodia accused of providing China with de facto veto power in the decision-making process of Southeast Asia’s ASEAN grouping, fostering economic cooperation in return.
Swift Free Trade Agreement
In 2020, China and Cambodia solidified their economic ties by agreeing to a free trade agreement. Notably concluded within a year, the deal involved significant tariff reductions on agricultural products and improved market access in the tourism industries of both nations.
Economic Stability Amid Challenges
This trade agreement played a crucial role in providing Cambodia with a much-needed economic cushion. In 2019, the European Union imposed punitive trade measures against Cambodia over human rights concerns. The diversified economic partnerships, including the 2020 free trade agreement, have contributed to Cambodia’s economic stability.
The collaborative efforts between China and Cambodia in establishing a yuan clearing arrangement signify a deepening economic partnership. This move aligns with China’s broader strategy to boost the global influence of the yuan. As the two nations navigate economic challenges and geopolitical dynamics, this strategic economic collaboration is expected to play a pivotal role in fostering bilateral growth.