China’s central bank plans to set up a cross-border payment system that facilitates greater use of the yuan in international trade and investment, and paves the way for increased convertibility of the currency.
The China International Payment System will likely be operational in one to two years, Li Bo, head of the People’s Bank of China’s second monetary policy department, said at a briefing today in Beijing. It will process cross-border yuan payments used in trade, investment and other purposes, according to a statement distributed at the briefing.
Premier Wen Jiabao has promoted wider use of yuan in international trade and investment to reduce China’s reliance on the dollar. To this end, the government has allowed exporters to settle trade in yuan with selected trading partners and also signed currency swaps with countries including Australia, Mongolia and Turkey.
“This is infrastructure that is conducive to expanding the use of the yuan in cross-border trade settlement, to serving the real economy and to capital account opening,” Li said. The conditions for yuan convertibility “are increasingly ripe,” he said, without elaborating.
The new system is designed to make yuan payments safer, stable and more efficient and will help the government achieve its goal of gradually making China’s currency convertible under the capital account, according to the central bank’s statement. The use of yuan in cross-border trade is conducive to capital account opening, the PBOC’s Li said.
International trade settled in yuan exceeded 2 trillion yuan and foreign direct investment settled in yuan reached 110 billion last year, according to the central bank.
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