Yuan trade barriers coming down

BEIJING - Zhou Xiaochuan, China's central bank governor, pledged to remove domestic policy barriers to promote the yuan's use in cross-border trade settlements and outward investments by Chinese enterprises.

However, Zhou said the government does not have any predetermined goal for the currency's international position.

"The yuan is just a domestic currency instead of a hard currency broadly used in international trade and financial transactions," he said during an interview with a small group of media including China Daily in December.

"Chinese authorities insist that the requirement that only hard currencies can be used in international trade, investment and financial transactions needs to be abolished."

He said the government will remove relevant limits to make the yuan equivalent to other currencies, but the pace of its internationalization still lies in market selection.

The status of the yuan is mainly determined by the decisions of companies and individuals outside Chinese borders, said Zhou.

What the government can do is to encourage domestic businesses engaged in international trade and investment to use the yuan as a settlement currency, he added.

"Chinese authorities insist that the requirement that only hard currencies can be used in international trade, investment and financial transactions needs to be abolished."

He said the government will remove relevant limits to make the yuan equivalent to other currencies, but the pace of its internationalization still lies in market selection.

The status of the yuan is mainly determined by the decisions of companies and individuals outside Chinese borders, said Zhou.

What the government can do is to encourage domestic businesses engaged in international trade and investment to use the yuan as a settlement currency, he added.
The central bank has also increased currency swapping. Since December 2008, when China and the Republic of Korea reached a currency swap agreement worth 180 billion yuan ($27.3 billion), China has extended currency swaps with eight monetary authorities, with a combined value exceeding 803 billion yuan.

In August, the central bank opened yuan investment return channels by allowing foreign central banks, overseas clearing banks and participating banks of the yuan settlement of cross-border trade settlement program to participate in bond trading in China's inter-bank market.

On Dec 15, the yuan was directly traded abroad for the first time at Moscow's MICEX, viewed as a milestone on the way to the yuan's internationalization. The transaction volume reached 4.92 million yuan ($738,850) by the end of trading against the rouble.

Daily trading in the yuan has grown from zero to $400 million in the past few months as the currency of the world's second-largest economy begins to flow around the world, the Wall Street Journal reported.

An HSBC report released on Oct 29 showed that the willingness to use the yuan for settlement is growing among both domestic and international enterprises.
(Source:http://www.chinadaily.com)