As its name suggests, renminbi cross-border settlement allows companies to settle trade using Renminbi. Experts say the settlement program will help companies head off risks in exchange rate fluctuation, and reduce currency exchange costs.
For a long time, more than 90 percent of trade transactions between China and countries which don't use the U.S. dollar or euro were settled in a third-party international currency. Both sides had to pay currency exchange fees. The exchange rate of the U.S. dollar and euro have fluctuated significantly since the global financial crisis. Companies had to bear the risks caused by that fluctuation. The Reminbi cross-border settlement program will help companies avoid such risks and reduce costs. It will also boost bilateral trade and investment between China and neighboring countries.
Long Yongtu, Secretary General of Center for the Study of the G20 said "Yunnan has an advantageous territorial position. The province is popular for trade and investment with neighboring countries. Renminbi cross-border settlement could help companies expand trade and give them strong financial support."
It's estimated Yunnan will see an annual average of 10 billion yuan of Renminbi settlement after the pilot program was approved. Yunnan is planning to set up a financial service center in Kunming to expand Renminbi settlement, and invite foreign financial institutions from ASEAN countries. It aims to build Kunming into a regional financial town in 10 to 15 years.
Zhang Zulin, Mayor of Kunming said "We will invite various financial institutions to form a complete financial service system. We'd like to become a financial trade market in this region."
But analysts say using the Renminbi to settle trade is still in its initial stage, as the total value of yuan settlement business was a little over 70 billion yuan last year, compared to the total trade value of 15 trillion yuan.