China to remove barriers to trade in Yuan

China will strive to remove domestic policy barriers to promote the use of its currency Yuan in cross-border trade settlements and outward investments by Chinese enterprises, China's central bank governor Zhou Xiaochuan said.
But at the same time the Chinese government does not have any predetermined goal for the currency's international position, he added.

"The Yuan just a domestic currency instead of a hard currency broadly used in international trade and financial transactions," he was quoted by the state-run China Daily as saying.

"Chinese authorities insist that the requirement that only hard currencies can be used in international trade, investment and financial transactions needs to be abolished," Zhou said.

His comments came as Yuan getting stronger against the US dollar appreciating almost 3.5 per cent since June last year.

The government will remove relevant limits to make the Yuan equivalent to other currencies, but the pace of its internationalisation still lies in market selection, he said.

The status of the yuan is mainly determined by the decisions of companies and individuals outside Chinese borders, Zhou said.

What the government can do is to encourage domestic businesses engaged in international trade and investment to use the yuan as a settlement currency.

"We will rely more on the market to form our view about its future direction. Therefore, we do not have an established goal for the next five years," he said.

Since the global financial crisis, major economies, including China and Russia have called for less dependence on the US dollar in international trade and investment, and accelerated steps to promote their own currencies on a global basis.

In April 2009, Chinese government had set up pilot projects in five cities to use the Yuan for settlement of cross-border trade with Hong Kong, Macao and members of the Association of Southeast Asian Nations.

Late it was extended to 20 provinces in In June 2010.

On January 13 this year, the central bank put forward a pilot program to allow domestic companies to use the Yuan to settle direct outbound investment for new ventures, mergers, acquisitions and stake purchases overseas.

On December 15, 2010, the Yuan was directly traded abroad for the first time at Moscow's Moscow Interbank Currency Exchange (MICEX), viewed as a milestone on the way to the Yuan's internationalisation.

The transaction volume reached 4.92 million yuan (USD 7,38,850) by the end of trading against the rouble.