HK hopes yuan trade settlement can start in July

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The Mainland and Hong Kong SAR have agreed to use the yuan to settle bilateral trade, beginning in July. The deal was signed by China's Central Bank Governor Zhou Xiaochuan and Joseph Yam, chief executive of the Hong Kong SAR Monetary Authority.

Zhou Xiaochuan, Governor of the People's Bank of China, left, and Joseph Yam, chief executive of the Hong Kong Monetary  Authority shake hands after they signed a supplementary  memorandum of co-operation, to prepare for the 'renminbi'  (people's currency) trade settlement between Hong Kong and  mainland China in Hong Kong Monday, June 29, 2009.(AP Photo/ Vincent Yu)

The scheme will expand HK's role as an offshore center for trade in the Chinese Yuan and test the ground for the currency's gradual liberalization.

Last December the central government announced the pilot project to promote use of the yuan to settle trade payments with HK. It was a milestone in China's efforts to internationalize the currency.

In April, Beijing said the cities of Guangzhou, Shenzhen, Zhuhai and Dongguan in Guangdong province, neighbouring HK, as well as Shanghai, would start the trial.

The scheme should cut foreign exchange costs for exporters and importers. At present they must settle trade in Hong Kong dollars or US dollars because the yuan is not fully convertible.

China is also looking at allowing yuan trade settlement with other trading partners.