China to work with Asian nations to grow use of local currencies in trade

China will work with Asian countries to beef up use of local currencies in trade and investment, Yi Gang, the governor of the central bank, said on Wednesday, as part of plans to strengthen regional economic resilience.

Recent years‘ progress by emerging Asian nations in using local currencies in trade and investment has strengthened the region’s financial safety net against external shocks, Yi told an event of the G20 grouping.

“Emerging markets should improve their resilience,” Yi said by video at the event hosted by Indonesia. “This is where regional co-operation has a key role to play.”

Bilateral currency swaps among the ASEAN regional grouping, China, Japan and South Korea have reached $380 billion, he said.

Last month, the Peoples Bank of China (PBOC) extended a bilateral currency swap pact with Bank Indonesia for three years to deepen financial cooperation and promote investment.

“Central banks from advanced economies should continue to enhance market communications,” Yi added, as this would help mitigate the spillover effect at a time of greater risks to emerging economies from the COVID-19 pandemic.

Economists believe China and other emerging economies could face the risk of capital outflows once the U.S. Federal Reserve starts to tighten policy.

A Reuters poll showed the Fed will kick off its tightening cycle in March, with an interest rate hike of 25 basis points, but a growing minority say it will opt for a more aggressive half-point move to tamp down inflation.

China will keep its accommodative monetary policy flexible, as economic growth is likely to return to its potential rate this year, Yi added.

(Reporting by Kevin Yao and Beijing newsroom; Editing by Clarence Fernandez)