Tue, Jul 07, 2009 - Page 11 News List

Shanghai companies sign first yuan settlement deals

BLOOMBERG

Three Shanghai companies agreed to settle import and export contracts in yuan for the first time, as China seeks to reduce the role of the dollar in global trade.

Shanghai Silk Group (上海絲綢), Shanghai Electric Group Co (上海電氣) and Shanghai Huanyu Import & Export Co (上海環宇進出口) signed 14 million yuan (US$2 million) in contracts with customers in Hong Kong and Indonesia, Fang Xinghai (方星海), director general of the municipal government’s financial services office, said at a press conference yesterday.

Bank of Communications Co (交通銀行) and Bank of China Ltd (中國銀行) offered transaction services.

China, Russia and India have said the world economy is too reliant on the dollar and called for changes in how US$6.5 trillion in foreign-exchange reserves are managed, before G8 leaders meet this week. The settlement program and sales of yuan-denominated debt overseas are designed to make the currency more attractive for central banks to hold.

“This is a first step on the long road towards that target of making the yuan a global reserve currency,” said Nizam Idris, a strategist in Singapore at UBS AG, the world’s second biggest foreign-exchange trader. “That’s probably going to take five years or more.”

The central bank last Thursday allowed companies in Shanghai and four cities in the southern Guangdong Province to settle trade in yuan with businesses in Hong Kong, Macau and the ASEAN. Outside of special border trade zones, companies previously had to convert yuan into dollars or other currencies to settle international trade.

“The yuan settlement program will help boost bilateral trade with Hong Kong and ASEAN countries,” People’s Bank of China Deputy Governor Su Ning (蘇寧) said at the signing ceremony. “The yuan is stable compared with other major currencies. A stable yuan will help companies control exchange-rate risks.”

For all the concerns about the dollar’s role, emerging markets such as China and India remain dependent on the currency. The IMF said on June 30 the share of dollars in allocated global foreign-exchange reserves increased to 65 percent, or US$2.6 trillion, in the first three months of this year, the highest since 2007.

Participation in China’s yuan settlement program will be limited to companies with good credit, Su said.

Separately, the Bank of China signed clearing agreements for yuan settlement in Shanghai with 11 overseas banks, including Standard Chartered PLC, Bank of East Asia Ltd (東亞銀行) and PT Bank Mandiri, the bank said in a statement issued at the press conference.

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