Yuan trade settlement to start in five Chinese cities

By Wang Xu (China Daily)

Updated: 2009-04-09 07:37

Five major trading cities have got the nod from the central government to use the yuan in overseas trade settlement - seen as one more step in China's recent moves to expand the use of its currency globally.

Shanghai and four cities in the Pearl River Delta - Guangzhou, Shenzhen, Dongguan and Zhuhai - have been designated for the purpose, said a State Council meeting chaired by Premier Wen Jiabao yesterday. The Pearl River Delta boasts the country's largest cluster of export-oriented manufacturing operations.

The move is aimed at reducing the risk from exchange rate fluctuations and giving impetus to declining overseas trade, according to a statement posted on the government website.

Analysts said the experimental use of the yuan in trade settlement also reflects policymakers' rising concern over the shaky prospects of the US currency, of which China has large reserves from previous trade growth, and their willingness to gradually expand the yuan's use globally.

"The trial is the latest move toward making the yuan an international currency," Huang Weiping, professor of economics at Renmin University of China, said. "The prospect of a weaker US dollar is making the transition more imperative for China."

The mainland is trying to promote the use of the yuan among trade partners and, in the past four months, has signed 650 billion yuan (US95 billion) worth of swap agreements with Argentina, Indonesia, South Korea, Malaysia, Belarus and the Hong Kong Special Administrative Region. The agreements allow them to use their yuan reserves to directly trade with the Chinese mainland within a set limit in volume.

Stephen Green, head of China Research of Standard Chartered Bank, said the swap deals would help encourage the use of the yuan as the currency of choice for international trade.

"In the longer term, if countries around the region and beyond start pricing their trade in yuan, this will also lead to increased internationalization and status for China's currency," Green said.