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RMB attains first step towards settlement in cross-border trade
May '09
After a long time wait, the pilot project for settlement of cross border trade in RMB has finally taken off. The executive meeting of the State Council chaired by Premier Wen Jiabao, decided that the RMB settlement pilot project would be carried out in five cities, including Shanghai and Guangzh, Shenzhen, Zhuhai, Dongguan in Guangdong Province.

To deal with the current international financial crisis, carrying out the RMB settlement of cross-border trade will have great significance for the promotion of regional economic and trade ties between China and its neighboring countries, while avoiding exchange rate risk, improving terms of trade, as well as maintaining steady growth of foreign trade.

This also means bringing one step forward the globalisation and acceptability process of the RMB in international trade. In December, the State Council put forward the idea that, Guangdong and the Yangtze River Delta will carry out the RMB settlement pilot for trade with Hong Kong and Macao regions while Guangxi and Yunnan will carry out for trade with ASEAN.

Later the central bank convened a meeting with State Administration of Foreign Exchanges to discuss supporting measures and now specific policies have been framed with regards to the same. At present, the central bank has fully prepared and studied the RMB cross-border settlement and is expected to unveil specific details soon.

According to analysis of experts, although the RMB has not been made fully convertible, it has firmly set foot on the road to internationalization. Globalisation of a country's currency is usually divided into three levels. The first level is the currency is widely used as a clearing agent in general international trade.

The second level is the currency has been widely used as a trading currency in foreign exchange market and the third level is that the currency becomes one of the major currencies of foreign exchange reserves. This is the initial stage of internationalization for the RMB to be used in international settlements.

At present, China's foreign trade is conducted on a huge scale and demand for Yuan-denominated settlement in border trade is growing, with the Yuan fulfilling all the conditionality's of internationalization. The government work report of this year has made it clear that the state will carry out pilot work of using Renminbi for International Settlements.

Some experts say that the most dominant symbol of the globalisation of the RMB would be for foreign countries, individuals and institutions transferring their foreign currency holdings in to the RMB. However, it has a long way to go, before the national currency achieves this goal.

Fibre2fashion News Desk - China

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