Reuters, which may have been the only major media in the U.S. to even notice it, said: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily."
As you know, I have said for some time that the reserve currency issue is a big deal for the Chinese, because if they can first deny that status to the U.S., they can substantially weaken us overnight in a move that will hurt us for decades. If they can then wrest reserve status for the yuan, they will enjoy all the benefits that we have had for the last 80 years of growth.
The International Business Times was a bit blunter than Reuters:
"This is all part of China's plan for the internationalization of its currency, which may, in the decades to come, threaten the global 'market share' of other currencies like the US dollar.
"Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.
"Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.
"Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency.
"China is already the leading trade partner with Australia and Japan. It's also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for China's trade partners, especially as the government continues to relax restrictions."
And Spiegel Online wrote an even blunter analysis (in German; Google translation below) headlined "China Attacks the Dollar":
"The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency – with serious consequences for the U.S..
"The announcement was inconspicuous (emphasis mine - Clay) but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in yuan, the central bank said on Wednesday in Beijing.
"This will respond to the growing importance of the yuan as a global reserve currency. The market demand for cross-border use of the yuan rises," said the central bank. The PBoC had previously tested this plan by allowing 67,000 enterprises in 20 provinces to run their business abroad in yuan. The trade volume amounted to the equivalent of €56 billion.
"Now the amount of yuan is to be extended, it should handle much more business in Chinese currency – and less in the U.S. dollar. Chinese companies at present often trade in dollars, and they are thus dependent on the decisions of the U.S. Federal Reserve to pay a rising oil price in dollars, and have pay higher transaction fees than necessary. That should change now.
"Currently, businesses in the People's Republic can hardly take yuan out of the country and even that is monitored within the boundary of all legitimate capital flows. Chinese exporters have to change a large part of their euro, yen or dollars at a fixed rate into yuan. Foreign companies wishing to do business in China must do so in yuan, and can exchange their money in the People's Republic. Tourists are allowed a maximum of 20,000 yuan and exporting yuan to an international market can not occur – and not on supply and demand-based exchange rate.
"Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.
"The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally-ill dollar."
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