China plans to expand settlements of international trade using the Chinese yuan to as many as 18 more provinces and cities to meet rising demand from companies, according to a Bloomberg report.
Cross-border transactions using the currency have been allowed in Shanghai and Guangdong since July last year, to reduce reliance on the US dollar.
However, authorities may permit them in areas including Guangxi in the south and Heilongjiang in the north, according to the report, quoting unidentified executives at Chinese state-controlled banks. A statement may come as soon as this month, said the bankers, who were briefed by regulators this week.
More and more Chinese companies want to use the yuan in international trade because of higher volatility in foreign currencies. China’s next step would be to provide more investment channels for overseas companies to invest in the yuan, the report said.
The new rules may let Chinese companies settle trade in goods and services in yuan with counterparties around the world.
The municipalities added to the program include Beijing, Tianjin and Chongqing, while the provinces include Shandong, Inner Mongolia, Liaoning, Jilin, Fujian, Sichuan, Xinjiang, Yunnan, Zhejiang and Jiangsu, the report added.
Speculation that China will end the yuan’s 22-month peg to the dollar drove 18.4 billion yuan (NZ$3.8 billion) in local-currency settlements in the first quarter, five times more than in the second half of last year, the central bank said on May 10.
China is promoting use of the yuan for trade and finance after purchases of US currency to defend the peg swelled the nation’s foreign-exchange reserves to US$2.45 trillion.
The yuan’s 12-month non-deliverable forwards strengthened 0.1% to 6.6606 per dollar, reflecting bets the currency will gain 2.5% from the spot rate of 6.83, according to data compiled by Bloomberg.
The Bloomberg report said China has halted the yuan’s advance since July 2008 after allowing it to climb 21% in the previous three years.
China started allowing companies in Shanghai and four cities in the southern province of Guangdong from July 2009 to use yuan in trade with Hong Kong, Macau and members of the Association of Southeast Asian Nations.
