China, S.Korea agree to boost yuan, won use in trade

Trade giants China and South Korea have agreed to utilise their currency swap valued at $59 billion to boost the use of yuan and won in bilateral trade, Seoul's finance ministry and central bank said on Tuesday.

Central banks of the world's largest and seventh largest exporters will begin lending trading firms yuan and won through banks from later this month for use in settling trade bills, the Ministry of Strategy and Finance and the Bank of Korea said in a joint statement.

"Using local currencies for trade settlement has been a global trend since the end of the 2008-2009 global financial crisis," Eun Ho-sung, deputy director general of the Bank of Korea's international department, told reporters.

"We plan to arrange similar agreements with other countries after this."

Another central bank official said the agreement was the result of two years of talks with China and had nothing to do with South Korea efforts to curb the won's volatility.

The swap arrangement for 64 trillion won ($59.09 billion) or 360 billion yuan was established late last year to help boost the pool of currencies the two countries can tap into at times of stress in addition to official foreign reserves.

The Bank of Korea plans to hold discussions with companies in Seoul to explain the terms of new facility to provide loans with maturities of three or six months.

China buys about one-quarter of South Korea exports, and is its largest market, but payment made in yuan or won accounts for only about 3 percent as the bulk is settled in U.S. Dollars. Though China is the world's second largest economy, the "redback", as the yuan is known, is not fully convertible. China keeps a tight control over its currency's value, allowing the exchange rate against the dollar to move a maximum one percent either side of a midpoint set each day by the central bank.

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