Three Shanghai companies used the yuan to settle cross-border trade deals for the first time Monday, a step toward promoting broader use of the Chinese currency internationally and, over time, reducing China's dependence on the dollar.
Bank of China Ltd. settled a trading deal by a unit of Shanghai Electric Group, a manufacturer of mechanical and electrical equipment. Bank of Communications Ltd. settled trades by Shanghai Silk Group Co., a textiles exporter, and by a Shanghai-based trading house whose English name wasn't available.
Chinese officials have said the yuan-based trade experiment is aimed at helping companies reduce the risks of exchange-rate fluctuations, which have led to significant losses at some exporters recently amid global financial-market turbulence. Officials also have in recent months voiced concerns about China's dependence on the dollar, which is used for most cross-border deals and which comprises the majority of China's roughly $2 trillion in foreign-exchange reserves.
China's government has long tightly controlled its currency and its exchange rate. Beijing signaled its intention to allow the use of the yuan for cross-border settlement in December, but guidelines governing such transactions were only issued last week. In its initial stage, the use of yuan for trade deals is limited to five Chinese cities, including Shanghai.
"The trial will increase the liquidity of the yuan outside of China, but by keeping it limited to only a handful of cities in this starting stage, we can control the volume," Su Ning, vice governor of the People's Bank of China, said on the sidelines of an event marking the launch of yuan settlement.
Mr. Su said that the program will help promote the stability of China's exports, and that a stable currency will help to expand the country's external trade.
With dollar-denominated trade financing having dried up globally amid the financial crisis, yuan settlement will allow China's highly liquid banking sector to offer finance in yuan and help keep the country's export sector humming, analysts say.
Separate to the three yuan-based trade transactions, Industrial & Commercial Bank of China Ltd. said Monday its Indonesian unit has provided a letter of credit for 372,000 yuan, or about $54,000, to a China-based exporter on an Indonesian firm. ICBC said it is the first letter of credit to be denominated in yuan for cross-border trade.
Meanwhile, renewed concerns about the global economy's health bolstered safe-haven currencies such as the dollar and yen Monday, as risk appetite remained weak following the long holiday weekend.
The dollar started off the session strong, but pared earlier gains against most major currencies in afternoon trading, as the Dow Jones Industrial Average trimmed losses to close in positive territory.
The yen, however, remained up across the board. At one point in New York, the dollar had touched a five-week low against its Japanese counterpart.
In late trading in New York, the euro was at $1.3979, little changed from $1.3978 Friday, and at 133.27 yen from 134.30 yen, while the dollar was at 95.34 yen from 96.08 yen. The pound was trading at $1.6289 from $1.6325, and the dollar was at 1.0848 Swiss francs from 1.0870 francs late Friday.
The Canadian dollar ended little changed after recovering from an overnight dip to seven-week lows, as the currency tracked the ebb and flow of global risk aversion. The dollar was trading at C$1.1625 late afternoon from C$1.1620 late Friday.
