China has issued detailed measures to regulate the pilot program for cross-border trade settled in yuan, according to a document released Thursday by the central bank. (File Photo) Photo Gallery>>>

    BEIJING, July 2 -- The government's decision to promote greater use of the yuan to settle cross-border trade is a key but prudent step on the road to making the Chinese currency fully convertible.

    After People's Bank of China (PBOC) issued detailed measures yesterday to regulate a pilot program for cross-border trade settlement, companies in Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan can use the yuan to settle deals with Hong Kong, Macao and regional trade partners.

    The move is also important because it will reduce foreign-exchange risks and transaction costs considerably for Chinese exporters, smarting from the impact of the worst global economic crisis in decades.

    Chinese exporters and importers have faced relatively bigger risks because of exchange-rate fluctuations since the global economic crisis has caused the US dollar, the euro and other major trade-settlement to oscillate ferociously. The PBOC pilot program will now save them the trouble of converting the yuan into the greenback or other currencies to settle cross-border trade.

    The government's gradual approach to internationalize the yuan shows that it is fully aware of the necessity to keep the global currency system stable. At the moment, it appears inevitable that the dollar-dominated international currency system will change. And expectations are high that the yuan, as a new currency of settlement, will not only help China, but also its trade partners and the world economy as a whole.

    But the severe economic situation at home and abroad means that any haste to liberalize the Chinese currency can create more troubles than it would solve. For instance, an outright revaluation of the yuan against the greenback will threaten the value of US government bonds that Beijing buys, as well as batter China's exports and slow its economic growth, the sector that could lead global recovery.

    The government is justifiably testing the waters before expanding the use of the yuan in more international trade deals. It has to be assured of the popularity of the yuan among overseas users before it takes an even bigger step toward making it fully convertible in the long run. In the short-term, it will ensure that the yuan helps stabilize the global currency system.

    (Source: China Daily)