The first cross-border yuan trade settlement deal came through today from the Bank of China (BOC), Hong Kong to Bank of China, Shanghai reports Xinhua.
The deal is part of a pilot program announced by Beijing last April to ease cross-border trade deals for Chinese importers and exporters in southern Guangzhou, Shenzhen, Shanghai, Zhuhai and Dongguan wanting to transact in renminbi with businesses in Macau, Hong Kong and other regional trade partners.
“Cross-border yuan trade settlement could help firms simplify trading procedures and reduce operation costs. It could also help banks to expand business scope, improve service, and forge stronger ties with enterprises, ” Li Lihui, president of the BOC said in a statement.
The Bank of China Shanghai branch told Xinhua that 11 overseas agent banks have already expressed interest on yuan trade settlement deals these include Standard Chartered (Hong Kong), Bank of East Aisa (BEA), Hong Kong-based Wing Hang Bank to name a few.
The move hopes to lessen the use of the declining U. S. dollar and make it easier to settle trade with Hong Kong. Prior to the agreement, China’s central bank called for changes in the international reserve currency to move from its dependency on the unstable U. S. dollar to a new reserve currency based on an expanded basket of currencies. According to the central bank report: “An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis.
The Chinese yuan is still a blocked currency outside the country and while the Hong Kong dollar is based on the U. S. dollar, it can still be converted outside the territory. It will mean though that Hong Kong transactions with the mainland will be smoother because the yuan can be used directly instead of first converting it to another currency.
This article was written for the China business news website, China-briefing.com. Articles for China-Briefing are contributed to by staff of Dezan Shira & Associates, a China tax and law firm, established by Chris Devonshire-Ellis over 20 years ago.
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