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The Chinese government's decision this month to let exporters in a small number of cities settle their overseas trade in yuan rather than in US dollars has far-reaching implications, according to economists, even though the immediate impact is minimal.
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China's move to extend use of the yuan comes as concern grows that increased US government spending to halt the financial crisis will reduce the value of the US dollar. That could reduce the amount of money earned by Chinese exporters if the yuan were to strengthen against the US currency. It could also reduce the value of US Treasuries held by the Chinese government.
It is estimated that of China's US$1.95 trillion in foreign exchange reserves at the end of last year, the largest in the world, 70% is invested in US dollar-denominated assets. Increased use of the yuan in international trade could help reduce countries' use of US dollars.
