Anchor: China's central bank has issued long-awaited regulations that set the stage for using the yuan to settle cross-border trade. Insiders believe the move will be a key step in the country's efforts to promote the yuan as a future global currency.
Reporter: Under the regulation, Shanghai and four cities in the Guangdong province, namely Guangzhou, Shenzhen, Zhuhai and Dongguan, have been selected for the scheme on the mainland. While outside the mainland, the pilot scheme will be implemented in Hong Kong, Macau and ASEAN countries.
Su Ning is vice governor of the PBOC, China's central bank.
"The fundamental idea of the scheme is to provide convenience for RMB trade settlement, and ensure that RMB could be applied to cross-border trade settlement in accordance with international practice."
Companies on the Chinese mainland currently have to convert yuan into dollars or other currencies to settle international trade.
Exporters in China and neighboring countries are facing relatively huge risks of exchange rate fluctuations because of big swings in the US dollar, the euro and other major settlement currencies.
Su Ning said the trial could protect exporters from swings in exchange rates especially against the backdrop of the financial crisis.
Zhao Xijun, a financial expert from Renmin University of China, noted the pilot scheme is a major step toward promoting the Chinese unit as a regional or even international currency.
"From the state level, it is a bid to expand the use of RMB in international trade and transaction while our country is coping with the financial crisis. The trial plays a similar role with other measures we have taken, such as currency swaps with some countries and regions. It will expand the use of yuan globally in tackling the crisis."
Meanwhile, the Chinese authorities are very prudent to the scheme. The central bank says it will put a cap on the size and maturity of all interbank borrowing in yuan, and maintain strict monitoring of accounts.
Su Ning said the central bank will control the scale of the yuan flow to prevent systemic risk.
"To prevent the risks, we need to authenticate of trade deals. Because we only allow yuan settlement for cross-border trade rather than other accounts such as capital account. Meanwhile, we will also control the overall scale of yuan flow, preventing an over flow of yuan against the backdrop of huge fluctuations in both domestic and global economies."
The central bank together with other authorities will choose the mainland companies as the only legitimate candidates in the trial. Over 140 mainland companies have been picked so far. The rules also granted tax rebates to companies which settle cross-border trade in yuan.
