China to allow Yuan to be used to settle trades normally denominated in dollars

December 29, 2008 by · Leave a Comment
Filed under: Currency News 

This is bearish news for the U.S. dollar for sure.   With China ability to produce goods on a major scale so they will always have something to trade, it looks like the Yuan might become a reserve currency.  It should be no surprise that with our reckless bailouts on companies that should of failed that is leading to a devalued dollar is not sitting well with countries that hold much of our sovereign debt.

News:

The pilot scheme was announced in a package of measures designed to help exporters hit by the global downturn.  It means if the two parties to a trade have yuan available, they need not enter world exchange markets to pay.

Most of China’s foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations.  The yuan is not yet a freely convertible currency.  Officials did not say when the trial scheme would start.

When it does, the yuan could be used to settle trade between parts of eastern China (Guangdong and the Yangtze River delta) and the territories of Hong Kong and Macau, and between south-west China (Guangxi and Yunnan) and the Asian group of countries (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam).

Spreading yuan

Analysts told Chinese media that the yuan was already being used in some South East Asian countries and that China was happy to see such use extended. 

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