Currency trading moves reap rewards

A popular yuan

The yuan-ruble trading also demonstrates that China and Russia are challenging the international role of the US dollar.

"The significant step taken by China and Russia will help to have a positive influence on the world currency system, though the dollar will continue to be the most important trading currency for a long time," said Pan Zhengyan, a senior researcher at the Financial Study Center of the Shanghai Academy of Social Sciences.

"Effective and efficient global cooperation and communication between countries and international organizations are all significant in our pursuit of the yuan's internationalization," central bank deputy governor Hu Xiaolian said in an published essay in September.

The direct yuan-ruble trading shows that China has made great efforts to push its currency in the international market, analysts said.

The nation is the only major trader in the world that does not make trade settlements with its own currency.

The yuan has gradually become convertible in international payment, and even as a reserve currency for some countries in recent years, following a series of government moves to encourage these.

A pilot program was launched in September 2008 to allow five selected cities to settle overseas trade transaction in the yuan. The program was later expanded to 20 provinces on June 17 this year and covered yuan settlement in cross-border trade in goods, services and other current account settlements.

The volume of yuan settlement is growing quickly. In the second half of 2009, the total volume of yuan settlement was just 3.6 billion yuan, while in the first half of this year, a total of 70.6 billion yuan was settled. During the third quarter, 126.49 billion yuan was settled.

In exploring the use of the yuan overseas, Hong Kong, with a relatively mature and sound financial system, has served as a significant platform. Hong Kong is the primary region of yuan settlement outside the Chinese mainland, covering more than half of the total business since a cross-border yuan trade settlement trial was launched in September 2008.

Economist Guan Jiaming at Standard Chartered predicts that the total circulation of the yuan could exceed a trillion yuan in Hong Kong in five years.

"The circulation of the yuan in Hong Kong has risen fourfold in the past two years to 200 billion yuan. We expect that in less than five years, the yuan's circulation will equal the circulation of Hong Kong dollars, judging from this fast-growing trend. That means all financial-related business will double by then," Guan said.

China first allowed Chinese mainland financial companies to issue yuan-denominated bonds in Hong Kong in 2007. This February, the central bank started to allow foreign companies to issue yuan-denominated bonds in this Asian financial hub. Fast-food giant McDonald's became the first foreign company to issue a total of 200 million yuan bonds with maturity to 2013.