April 9 (Bloomberg) -- Hong Kong plans to be the first city outside mainland China to start settling trade in yuan, expanding use of the currency in a city whose exchange rate is pegged to the dollar, Chief Executive Donald Tsang said. âIt will reduce foreign-exchange risks for companies, create more business for Hong Kong banks and diversify use of yuan funds,â Tsang said at a press briefing in the city. âThe policy has already been approved. Itâs almost here.â China is seeking to promote the yuan as an international currency after signing 650 billion yuan ($95 billion) in swap agreements with Hong Kong, Argentina, Indonesia, South Korea, Malaysia and Belarus in the past four months. The yuan has gained 21 percent against the dollar since its fixed exchange rate was scrapped in 2005, eroding the value of Chinaâs central bank reserves and exportersâ profits. âThese are baby steps toward liberalization of Chinaâs capital account and internationalization of the renminbi,â said Tim Condon, head of Asia research at ING Groep NV in Singapore. âAccess to renminbi is not going to be an issue. China is using its financial might to hedge any risk it might face in terms of supplies of central raw materials for its growth and demand in other markets for its products.â Chinaâs State Council said yesterday it allowed yuan settlement for international trade in Shanghai and four cities in Guangdong province to promote global use of the currency and protect companies from swings in the dollar. The cabinet will release related regulations âas early as possible,â it said in a statement on its Web site. http://www.bloomberg.com/apps/news?pid=20601087&sid=aqCV4tMF74Fc&refer=home Baby steps. Baby will grow up.
It is a bit like Russia deciding Cuba would do XXX in the good old days. Well, except that Cuba did have a choice.