Compiled by Caijing staff

From Caijing online

China will allow companies to use of renminbi to settle their trade between selected provinces and Hong Kong and Macao, Chinese Premier Wen Jiabao announced at a State Council executive meeting on Dec 24. The move is a first step for China to making the renminbi, also known as yuan, an international currency.

The new policy applies to trade between Guangdong province and the Yangtze Delta, and Hong Kong and Macao as well as between Guangxi autonomous region and Yunnan province, and members of the Association of Southeast Asian Nations.

The practice will be implemented on a trial basis.

With the mainland’s increasing trade volume with neighboring regions, using the renminbi instead of the U.S. dollar to settle payments will reduce currency risks and allow more cost-control.

“The announcement has long been awaited by Hong Kong enterprises,” said He Guangbei, chairman of the Hong Kong Association of Banks. “This will help Hong Kong become an offshore renminbi center.”

Establishing Hong Kong as an offshore renminbi center can spread the currency’s popularity in Asia, and prepare for an international launch in the longer term, said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing.

A source in the banking sector said there are currently no technical difficulties to using the yuan to pay off trade, and a general consensus among mainland enterprises supports using the yuan as a settlement currency.