Buyers and sellers at the 105th Canton Fair in Guangzhou are no longer restricted to using the US dollar to settle their deals. This year they can also use the yuan, China's currency.

Last week, the State Council gave the green light to five major trade cities -- Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan -- to use the yuan, also known as Renminbi, as an option to settle international trade deals.

Last December, pilot programs were announced to allow the country's two economic powerhouses, Guangdong Province and the Yangtze River Delta (including Shanghai), to use the yuan to settle trade deals with the two special administrative regions of Hong Kong and Macao.
 
A similar arrangement has been proposed for exporters in Guangxi Zhuang Autonomous Region and Yunnan Province in south China, which will be allowed to use the yuan to settle trade with ASEAN (Association of Southeast Asian Nations) members starting this year. Details of that program are yet to be disclosed.

China has also been arranging currency swaps with trading partners to bypass the US dollars in trade settlements. Since mid-December, the Chinese mainland has signed currency swap contracts worth 650 billion yuan ($95.6 billion) with central banks in Hong Kong, the Republic of Korea, Malaysia, Belarus, Indonesia and Argentina. These swap accords allow other overseas central banks to sell yuan to local importers who want to buy Chinese goods.

It is believed these moves will benefit manufacturers and traders at home and abroad by reducing their exposure to exchange-rate volatility, increasing liquidity in foreign trade and reducing consumer burdens. At the 105the Canton Fair, the most immediate effect of the trial use of Renminbi will be lower exchange-rate risks.

Professor Xiao Yao, of the research center of foreign trade and international economic cooperation under the Guangzhou-based Guangdong University of Foreign Studies, said, "Along with future world economic recovery, developed nations are bound to recall a large amount of capital from emerging markets. Then China will have to depend on itself to maintain sufficient fluidity.