China tries settling trade with yuan instead of dollar

Yuan-Settlement Test to Start

From Shanghai Daily
Shanghai, China
Wednesday, January 7, 2009

http://www.shanghaidaily.com/sp/article/2009/200901/20090107/article_387...

China's central bank said yesterday that it plans to implement a pilot program that would settle overseas trade with the Chinese currency instead of the US dollar.

The People's Bank of China will expand financial cooperation with overseas economies and "properly deal with the global financial crisis," the central bank said.

"We'll actively join international efforts to tackle the global financial crisis while safeguarding national interests," the central bank said.

It pledged to implement a pilot program that the State Council announced last month.

China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China's two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.

Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars, analysts said.

The dollar's exchange rate has become more volatile since the global financial crisis began.

The central bank said it will make the exchange rate of the yuan more flexible and keep it "basically stable on a reasonable, balanced level."

There has been speculation that the yuan's appreciation will slow down, which would help Chinese exports maintain price advantages in overseas markets.

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