(Yicai Global) Jun. 12 -- China will encourage increased use of the Chinese yuan in cross-border trade and investment in order to better meet the needs of foreign trade companies in settlement, investment, financing and other areas, according to a notice on the Ministry of Commerce website.

China’s financial institutions should facilitate international payments for goods and services using the redback and support foreign investors to invest and reinvest in China using the yuan, according to the notice which was issued by the Ministry of Commerce and the People’s Bank of China yesterday.

The move will help to further internationalize the yuan, make international payments more convenient for businesses and spur overseas economic activities, Huo Jianguo, vice president of the China Society for World Trade Organization Studies, told Yicai Global.

Banks should support the use of the redback in all types of foreign trade payment and investment, particularly among neighboring countries and regions as well as members of the Regional Comprehensive Economic Partnership trade pact, the notice said.

Most import and export orders are quoted in US dollars or Euro, Huo said. But China has signed bilateral agreements with many countries that are part of the ‘Belt and Road Initiative’ and other friendly nations which allow payment in yuan and this facility can be further expanded.

Encouraging greater use of the yuan in foreign trade will relieve some of the pressure from US dollar fluctuations and lower the cost of foreign exchange transactions, Huo said. An unstable exchange rate greatly impacts imports and exports.

Lenders should provide more convenient and efficient settlement services, issue additional offshore yuan-denominated loans and promote the use of the redback in pilot free trade zones and the Hainan Free Trade Port, the notice said.

Local commerce authorities and PBOC branches should meet the needs of businesses promptly and take measures in line with their local situation to create a favorable environment for the cross-border use of the yuan, it added.

Editors: Shi Yi, Kim Taylor