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Update:Shanghai may start yuan settlement trials
BBC News, 12.25.08
China has said it is to allow some trade with its neighbours to be settled with its currency, the yuan.The pilot scheme was announced in a package of measures designed to help exporters hit by the global downturn.
It means if the two parties to a trade have yuan available, they need not enter world exchange markets to pay.
Most of China’s foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations.
The yuan is not yet a freely convertible currency.
Officials did not say when the trial scheme would start…
Central bank governor Zhou Xiaochuan was quoted by the South China Morning Post as saying: “The US dollar is unlikely to be stable next year and later.
“And the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets and trade settlements.”
Market Skeptics has some good comments on the implications of this move. The bottom line is that a shift away from dollar-denominated trade settlements by China can be potentially very bearish for the dollar.
Filed under: China, Economy—US Dollar | Tagged: China, currency, dollar, euro, exchange markets, international currency, reserve currency, us dollars, world currency, yuan
