Yuan trade more'far reaching' - something we should keep track of

[ensho]

http://www.atimes.com/atimes/China_Business/KD21Cb01.html


The Chinese government's decision this month to let exporters in a small number of cities settle their overseas trade in yuan rather than in US dollars has far-reaching implications, according to economists, even though the immediate impact is minimal.

The trading hubs of Shanghai at the mouth of the Yangtze River and Guangzhou, Shenzhen, Zhuhai and Dongguan in the Pearl River Delta further south can use the yuan in overseas trade settlement, a State Council, or cabinet, meeting chaired by Premier Wen Jiabao said. The two deltas are the base for most of China's export-oriented industry.

The settlement scheme is voluntary and of benefit to relatively small groups, said Pauline Loong, senior vice president in charge of China policy and risk research at CIMB-GK Securities (HK) Ltd, but "the implication is far-reaching. The scheme extends the use of the Chinese currency outside of the mainland. We see this as the first step on the road to full liberalization of China's capital account and full convertibility for the renminbi," one term for the Chinese currency, also known as the yuan.

Most international trade is carried out in US dollars. The Chinese scheme is aimed at reducing the risk from exchange-rate fluctuations and giving impetus to declining overseas trade, a statement posted on the Chinese government website said. Further details of related regulations
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