Commentary: Yuan, ruble break the ice with direct trading

12:05, December 18, 2010      

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The Chinese yuan has made an ice-breaking step for its trading outside China after Russia recently started direct trading of the Chinese currency with the ruble.

The Moscow Interbank Currency Exchange (MICEX) officially started the direct trading business for the first time on Wednesday, which is expected to boost bilateral economic and trade cooperation between China and Russia.

More importantly, the move is also expected to promote the popularity of the yuan in the global market and give momentum to reform of the international currency system.

First of all, the direct convertibility would undoubtedly become a significant part of the Russia-China relationship and a milestone for their financial markets.

The two countries lifted the last restrictions on trading in the ruble and yuan last month, following a meeting between Premier Wen Jiabao and his Russian counterpart Vladimir Putin in St. Petersburg.

"This is a serious step forward towards creating better trade conditions and this is the result of the strengthening of our economies," Putin said.

In 2002, Russia and China started a pilot operation in their border areas, allowing Russian and Chinese banks to open accounts in rubles and yuan.

One year later, the Bank of Russia and the People's Bank of China signed an agreement on trade in national currencies.

Viktor Melnikov, deputy chairman of the Russian Central Bank, said that trade from 2003 to 2010 between Russia and China in the border areas jumped more than 900 percent.

This year, trade between the two countries was expected to reach 50 billion U.S. dollars.

Secondly, the direct yuan-ruble trading showed that China has made great efforts to push its currency to the international market.

China is the only major trader in the world that doesn't make trade settlements with its own currency.

During recent years, China began to market the yuan through currency exchanges and cross-border trade settlement. The Chinese yuan has gradually become convertible in international payment, and even as a reserve currency for some countries.

After direct trading with Malaysia's ringgit and Russia's ruble in China's foreign exchange market, the yuan now can be traded with seven foreign currencies in China.

The more that foreign currencies can be exchanged in China, the more interest foreign markets will show in the yuan, which would help raise its status globally.

Moreover, the yuan-ruble trading demonstrates that China, as well as Russia, are challenging the international role of the U.S. dollar.

China and Russia both have called for a diminishment of the dollar's role in global trade since the global financial crisis, seeking to reduce the world's reliance on the greenback.

Experts said though that the dollar will continue to be the most important trading currency for a long time, the significant step taken by China and Russia is believed to impose positive influence on the world currency system.

"In the case of ruble-yuan trade, the operations affect not only the bilateral financial flows but the global financial system," said Andrei Lusnikov from Finmarket Analytical Agency in Moscow.

"If MICEX trading succeeds, it will show a way for the financial authorities of other countries and increase their interest in the Chinese currency. Yuan might gradually start playing a role of global reserve currency along with the U.S. dollar and euro, as a result," said Lusnikov.

Source: Xinhua
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