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Yuan to spread as Bank of China lets U.S. customers trade RMB

By Gertrude Chavez-Dreyfuss and Saikat Chatterjee

NEW YORK/HONG KONG (Reuters) - State-owned Bank of China Ltd has offered yuan trading to U.S. customers, a sign that Beijing this year may increasingly promote the use of the Chinese currency in major financial centers.

The change at Bank of China announced in a posting dated December 2010 means that customers can trade in yuan in the United States for the first time rather than having to do so in Hong Kong.

The New York branch of China's fourth-largest bank said it now lets companies and individuals buy and sell the yuan via accounts with its U.S. branches, although U.S. businesses and individuals can also trade the currency through Western banks.

"The authorities are promoting the use of the yuan in international trade and this is another step in that direction and this means we should see the growth of yuan trading in other regional centers across the world," said Robert Minikin, senior currency strategist at Standard Chartered Bank in Hong Kong.

The move is seen as another small step to redenominate trade in yuan after persuading mainland importers and exporters to reduce settling trade in the U.S. dollar and striking trade settlement agreements with Russia, Brazil and other countries.

These efforts have paid off with the yuan deposit base expanding sharply since the July 2010 trade liberalization rules leading to the emergence of an offshore yuan and yuan-linked instrument market in Hong Kong.

SMALL STEPS

Yuan deposits in Hong Kong jumped to 280 billion yuan by the end of November from just 63 billion yuan at the end of 2009, and with the likelihood of more trade being settled in yuan in other centers, more pools of liquidity could mushroom.

In Singapore, HSBC has started offering yuan deposits to customers in Singapore with investible assets of more than 200,000 Singapore dollars and DBS will offer yuan deposits to customers soon.

"Every step has been a small step. It is with small steps to a more flexible currency, but at their pace and what they are comfortable with. It is also not a shock that the Chinese did this just when they are meeting with U.S. officials," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

While this would bolster trade settlement in yuan, it still has a long way to go before it assumes the status of an alternative reserve currency as Chinese policymakers ultimately control the yuan liquidity taps in offshore markets and investing in mainland assets is still strictly controlled.

The move comes before a scheduled visit to Washington by Chinese President Hu Jintao for a summit on January 19.

The bank's website, which outlines details of holding renminbi accounts, said the bank offers yuan savings, demand deposit and time deposit accounts to business customers in New York and Los Angeles.

A savings account requires a minimum balance of the equivalent of $5,000, while the minimum in demand deposit accounts is $3,000.

(Additional reporting by Julia Haviv in NEW YORK, Kevin Lim and Catherine Trevethan in SINGAPORE, Editing by Kevin Plumberg)

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