China looking at direct yuan trade with Australian dollar

China may soon allow its currency to trade directly with the Australian dollar, according to officials from the central bank and a top government think tank.

The official at the People's Bank of China, who did not want to be identified, said moves were afoot to allow direct trade settlement between Australia and China, rather than through the US dollar, lowering transaction costs. He said the possibility was under discussion at the Boao Forum, on Hainan, but refused to provide a time frame.

There has been speculation that direct offshore trade settlement is high on Australian Prime Minister Julia Gillard's agenda on her current trip to China.

Zhang Ming, a deputy director of the Department of International Finance at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said the two governments might move in that direction "quite soon".

Zhang said direct trading would promote internationalisation of the yuan and boost its circulation. "It will make yuan more attractive overseas," he said.

Xiang Songzuo, deputy chief of the Institute of International Currency at the People's University, also said Beijing has been weighing the idea for some time and although he would not guess when the policy will be formally announced, said: "It could be quite soon."