Shanghai Companies Sign First Yuan Settlement Deals

July 6 (Bloomberg) -- Three Shanghai companies agreed to settle import and export contracts in yuan for the first time, as China seeks to reduce the role of the dollar in global trade.

Shanghai Silk Group, Shanghai Electric Group Co. and Shanghai Huanyu Import & Export Co. signed contracts worth 14 million yuan ($2 million) with customers in Hong Kong and Indonesia, Fang Xinghai, director general of the municipal government’s financial services office, said at a press conference today. Bank of Communications Co. and Bank of China Ltd. offered transaction services.

China, Russia and India have said the world economy is too reliant on the dollar and called for changes in how $6.5 trillion in foreign-exchange reserves are managed, before Group of Eight leaders meet this week. The settlement program and sales of yuan-denominated debt overseas are designed to make the currency more attractive for central banks to hold.

“This is a first step on the long road towards that target of making the yuan a global reserve currency,” said Nizam Idris, a strategist in Singapore at UBS AG, the world’s second biggest foreign-exchange trader. “That’s probably going to take five years or more.”

The central bank on July 2 allowed companies in Shanghai and four cities in the southern Guangdong province to settle trade in yuan with businesses in Hong Kong, Macau and Association of Southeast Asian Nations. Outside of special border trade zones, companies previously had to convert yuan into dollars or other currencies to settle international trade.

Exchange Rate Risks

“The yuan settlement program will help boost bilateral trade with Hong Kong and Asean nations,” People’s Bank of China Deputy Governor Su Ning said at the signing ceremony. “The yuan is stable compared with other major currencies. A stable yuan will help companies control exchange-rate risks.”
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