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It is getting serious: China has not only allowed to use Yuan for cross border settlements, but is encouraging it with Tax incentives. After questioning US Dollar as store of value and selling long term curve of Treasuries, now China is moving further out of US Dollar. It is a full switch policy from US Dollar as a currency of choice for exchange function of money. US Dollar as a reserve currency of choice time is over.

"China Allows Yuan Trade Settlement, Offers Tax Breaks.

By Bob Chen
July 2 (Bloomberg) -- China’s central bank allowed companies to undertake settlement of cross-border trade in the yuan and offered them tax breaks, seeking to reduce the reliance of importers and exporters on the U.S. dollar.
The People’s Bank of China will encourage banks to offer yuan settlement services from today, the bank said in a statement on its Web site. Tax authorities are working on the specific regulations for rebates, it said.
China is promoting greater use of the yuan in international trade and finance after Premier Wen Jiabao in March expressed concern that a weakening dollar will cause losses on holdings of U.S. assets. A Chinese Foreign Ministry official said today he hoped the greenback would remain stable, while reiterating a call for diversification of the international monetary system.
“Companies in China and neighboring countries are facing relatively huge risks of exchange-rate fluctuations because of big swings in the U.S. dollar, the euro and other major settlement currencies during the global financial crisis,” the central bank statement said.
China approved use of yuan to settle cross-border trade with Hong Kong on June 29. Hong Kong Monetary Authority Chief Executive Joseph Yam said that day he hopes the first transactions will start this month and Governor Zhou Xiaochuan said the program would reduce foreign-exchange risks and transaction costs.
‘A Big Step’
The government said on April 8 that it will allow Shanghai and four cities in the southern Guangdong province, including Shenzhen and Guangzhou, to settle international trade in yuan. Companies currently have to convert yuan into dollars or other currencies to settle international trade.
About 50 percent of Hong Kong’s trade with China may be settled in yuan after the program starts, Stanley Wong, deputy general manager at Industrial & Commercial Bank of China (Asia) Ltd., the Hong Kong unit of China’s biggest bank, said in an interview on May 5. Hong Kong companies want to use yuan in trade because it will probably appreciate against the U.S. dollar more than 3 percent every year, he said.
The Chinese yuan has strengthened 21 percent against the U.S. currency since a dollar peg was scrapped in 2005. China has limited the yuan’s advance in the past year as a stronger currency makes its goods less competitive overseas at a time when the economy is forecast by the World Bank to expand 7.2 percent in 2009, slowing from 9 percent last year.
Hong Kong Financial Secretary John Tsang said June 29 the city will be a “testing ground” for use of the yuan outside mainland China. Today’s statement said that Macau and Asean nations in Southeast Asia would also take part in the pilot program.
The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps to expand its usage. China and Brazil in May began studying a proposal to move away from the dollar to settle trade and use yuan and reais instead.
To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net"