Yuan to start direct trading with euro today

The mainland will start direct trading between the yuan and the euro today as the world's second-largest economy seeks to spur global use of its currency.

The move will lower transaction costs and so make yuan and euros more attractive when conducting bilateral trade and investment, the People's Bank of China said yesterday in a statement on its website. HSBC said separately it had received regulatory approval to be one of the first market makers when trading begins in the mainland's domestic market.

The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the US, Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments last month and more than a third of the world's financial institutions have used it for transfers to the mainland and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week.

"It's a fresh step forward in China's yuan internationalisation," said Liu Dongliang, an analyst with China Merchants Bank in Shenzhen. "However, the real impact on foreign exchange rates and companies may be limited as onshore trading volumes between yuan and non-dollars are still too small to gain real pricing power."

Transactions exchanging yuan for US dollars totalled 12.2 trillion yuan (HK$15.4 trillion) in the first half of this year, dwarfing the 110.4 billion yuan worth of trades for euros and the 251.7 billion yuan for yen, the PBOC said in a monetary policy report last month.

The mainland's trade with European Union nations grew 12 per cent year on year to US$404 billion in the first eight months of this year, according to mainland customs data. That compares with just US$354 billion with the United States during the same period.