China Daily reports that the Bank of China primes for yuan settlement.

(emphasis mine) [my comment]

Bank of China primes for yuan settlement
By Yang Zhen (China Daily)
Updated: 2009-02-19 07:53

Bank of China (BOC), the country's third largest lender, has been selected as the settlement bank for a pilot program that allows part of the regional trade to be settled in renminbi.

A formal announcement on the bank's role in the program would be made before the end of this month, said a BOC source.

China's State Council, the cabinet, announced plans to begin yuan settlement trials with some economies in December 2008.

The program would permit the use of the yuan in trade between the Chinese regions of Yunnan and Guangxi with the Association of Southeast Asian Nations (ASEAN).

The Pearl and Yangtze River delta regions would also be permitted to use yuan for settlement for trade with the special administrative regions of Hong Kong and Macao.

"Bank of China's experience in international trade settlement made it the perfect choice for this program," said Hu Jianjun, analyst, Hongyuan Securities. Before 1994, all foreign currency exchange and international trade settlement had to go through BOC.

Official figures showed that China's exports plummeted by 17.5 percent from a year earlier, the most in 13 years, in January.

The currency program is expected to protect mainland exporters from the impact of exchange rate fluctuations and boost trade with business partners from the ASEAN, Hong Kong and Macao.

Due to exchange rate fluctuations between the yuan and US dollar, Chen Xianbin's company lost more than 150 million yuan in the past three years from international trade.

Chen's company, Guangxi Sanhuan Enterprise Group, is one of China's leading ceramic tableware exporters and its business with partners from ASEAN accounts for about 15 percent of its total sales.

"We will be happy to use the yuan to do business with our partners. But most of our partners are unwilling to pay us in yuan, as they will have to exchange their own currency into US dollar first. Since the yuan is not traded freely internationally [YET], using the yuan only creates more trouble," Chen said.

Although it seems the currency pilot program may not show significant impact on China's exports, it is being viewed as an important first step in internationalizing the yuan. Revenues from international trade in 2008 reached 10 billion yuan in Guangxi, with 80 percent coming from deals with ASEAN partners, said Zhao Deming, an official in charge of finance in the provincial government.

"The currency program will help strengthen the yuan's reputation," Zhao said.

Today's Zaman reports that Turkey is promoting its currency with trade partners.

Turkey promotes its currency with trade partners

Having recently decided to evaluate the use of the Turkish lira (TL) in trade with Russia and Iran, aiming to boost exports to neighboring countries and reduce its reliance on foreign currencies, Turkey now expects to do the same in its commerce with China.

The government is currently preparing to start negotiations with Chinese officials to launch trade in TL with China, after doing so with Russia and Iran. Should the two parties reach agreement, the Chinese yuan will be used along with the TL in trade with China. The Foreign Trade Undersecretariat (DTM) has already conveyed this suggestion to the Chinese government and is expecting a response shortly. Turkey exports mainly metals, motor vehicles, leather and silk products to China while importing textiles and electronic goods from the country. Underlining that the TL has become a reliable and convertible currency in global markets, having gained value over the past few years, officials from the DTM told Today's Zaman that China has a stable economy and that their currency is "strong" against others in global markets. DTM officials said Turkey would not be the first country to conduct trade in its local currency with China. "There are other countries already using their local currency with China," they noted, adding that such a system aims to protect countries in a region from currency fluctuations.

DTM officials said Turkey's exports to China have increased 60 percent in the last 18 months, reaching $1.5 billion. "Once the historic Silk Road route, one of the world's oldest trade corridors between East and West, is revived, and rail operations commence, establishing a trade route between the Far East and Europe via Turkey, trade with China will become more significant, and usage of the lira will also gain importance," they stressed.

Turkey is currently in negotiations with Russia and Iran over use of the local currency in mutual trade. Officials have also said trade in the local currency would be initiated with Iraq in the next few years, noting, however, that Turkey had no intention of trading in TL with its other neighbors, such as Georgia and Syria, for the time being.

Foreign Trade Undersecretary Tuncer Kayalar said confidence in the TL has increased over the past few years thanks to continuous growth in the Turkish economy and inflation falling to single digits. He said they expected the trend of increasing confidence in the TL to continue, noting that it is now time to use the TL in foreign trade. He said the government would shortly reach an agreement with Russia. He explained that Turkey attached importance to increasing foreign trade within the scope of a strategy for developing trade and economic relations with its neighbors and other nearby countries introduced in 2000.

Foreign Trade Minister Kürşad Tüzmen said on Jan. 11 that they were working to enable Turkish exporters to use the local currencies of neighboring countries instead of the US dollar when engaging in foreign trade, adding that the government had studied the implementation of similar applications in other countries. Tüzmen stated that Turkish exporters trading with Russia recently demanded use of the Russian ruble in their trade. "We are evaluating such requests," he said. Some Iranian exporters had also recently suggested using the TL in their trade with Turkey. Last week representatives from trade unions expressed their belief that using the TL lira in foreign trade would boost Turkey's exports.

Trade volume with Russia, China hits $55 billion

Turkey, which has broken new export records every year for the past six years, has increased its exports to Russia and China. According to data released by the Turkish Statistics Institute (TurkStat), Turkish exports reached $132 billion by end of 2008 while imports amounted to $201.8 billion in the same period, resulting in a foreign trade deficit of $70 billion. Trade with Russia and China alone amounted to $55 billion. Turkey's exports to Russia totaled $6.48 billion in 2008 while imports from this country reached $31.3 billion, with natural gas being a dominant factor. Likewise, imports from China exceeded Turkey's exports to the country in 2008; Turkish exports to China amounted to $1.43 billion, whereas imports from China were $15.6 billion.

My reaction: The yuan keeps moving along towards becoming an international currency.

1) Bank of China (BOC), the country's third largest lender, has been selected as the settlement bank for a pilot program that allows part of the regional trade to be settled in renminbi.

2) The currency program is expected to protect mainland exporters from the impact of exchange rate fluctuations

3) The currency pilot program may not show significant impact on China's exports, it is being viewed as an important first step in internationalizing the yuan, as it will strengthen the yuan's reputation.

4) Turkey is promoting its currency with trade partners, especially Russia, Iran, and China.

5) On January 11, the government said it was working to enable Turkish exporters to use the local currencies of neighboring countries instead of the US dollar when engaging in foreign trade.

6) Turkish exporters trading with Russia recently demanded use of the Russian ruble in their trade.

7) Turkey has broken new export records every year for the past six years and has increased its exports to Russia and China. It has recently been affected by the global downturn though.

Conclusions: Moves by China, Turkey, and other nations show that the dollar is quietly losing its place as the world’s reserve currency.