ACU is Coming, Are You Ready to Salute It? By Ella Xu

Since the beginning of 21st Century, the father of EURO, Mr. Robert A. Mundell, predicted that the EURO, USD and ACU (“Asia Currency Unit”) will divide the world into three main areas in about 10 years. Now, the time line is coming. China sent out a signal to the world to remind everybody what he said had been correct.

The Chinese Government publicized and implemented a new rule about RMB use in cross-border transactions directly with 10 countries in Asia, HK Special Administration Region and Macao since July 1, 2009.

For example, firms in Hong Kong will be allowed to use the yuan to settle trades with their counterparts in five major mainland cities as soon as this month. Signed by the People’s Bank of China and the Hong Kong Monetary Authority on Monday, the pact with Hong Kong to use the yuan as a settlement currency for trade is the latest step toward China’s long-term aim of internationalizing the yuan. At present, the yuan is not fully convertible on the world market.

The agreement will also allow Hong Kong banks to carry out more yuan business, a potential benefit to their earnings. The pact will allow Hong Kong firms to settle trade in yuan with firms in Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai. Zhou Xiaochuan, governor of the People’s Bank of China, said at a news conference in Hong Kong that the new arrangement “will effectively reduce risks in foreign-exchange rates and costs in translating foreign currencies while making payment,” reducing overall trading costs. Joseph Yam, chief executive of the Hong Kong Monetary Authority, said the agreement would also “facilitate an orderly flow of yuan between Hong Kong and the Mainland.” The agreement marked “a significant milestone for Hong Kong,” HSBC economist George Leung said.

Although it will meet some problems and difficulties at the beginning, it is a significant step in the procedure of China entering into the world. It will lower investors’ risk on exchange rates and simplify the procedure of international trading.

Please contact us if you want to know more about this new policy here in China.