The Shanghai branch of the Bank of China is preparing to test a system of settling overseas trade in yuan, as Shanghai was named one of five mainland cities to test the practice.

BOC plans yuan settlement trial

The Shanghai branch of the bank will settle overseas trade by yuan, rather than by United States dollars, the bank said yesterday, giving no timetable for the trial.

The system covers commodities transactions, such as steel, petrochemicals and manufacturing equipment.

The trial is expected to help stabilize trade, trim exporters' currency exposure and build up the yuan's position in the international monetary system.

Exporters can avoid exposure to foreign currency fluctuations by yuan settlement and improve financial planning.

The State Council earlier this month named Shanghai and four cities from southern Guangdong Province - Guangzhou, Shenzhen, Zhuhai and Dongguan - to start the trial.

China said last year it planned a trial for yuan settlement for trade between mainland cities in Guangdong and the Yangtze River Delta and the special administrative regions of Hong Kong and Macau.

A trial for trade between Yunnan Province and Guangxi Zhuang Autonomous Region and the members of the Association of Southeast Asian Nations is also said to be in the pipeline.

(Shanghai Daily April 15, 2009)