The number of foreign companies using the yuan as their currency of choice has surged after rules introduced earlier this year allowed yuan settlements for Chinese traders.

The number of French companies paying in yuan increased by 30 percent in the second quarter from the previous quarter.

Australian companies closely followed that example with a rise of 25 percent in the same period, according to Western Union, a global payment company.

The People's Bank of China allowed Chinese importers and exporters to settle trade using the yuan in March.

"In a very short period of time we have seen a marked increase in the number, and value, of payments companies are sending to China through the renminbi," said Gareth Heald, regional finance director of Western Union Business Solutions.

Western Union saw a sharp rise in British organizations, such as universities, law firms and pension funds opening their accounts in yuan.

China started testing cross-border renminbi trade among 365 companies in July 2009. The program later expanded nationally to 60,000 companies. The regulation in March finally allowed all companies to price, invoice and settle business in yuan.

For foreign companies, using the renminbi means they can avoid foreign exchange risks and reduce costs. They also find it easier to negotiate with Chinese companies in their own currency.

More than one-third of Chinese companies expressed a preference for payment in yuan, according to a survey by Western Union of 1,000 Chinese companies last year. Their preference was based on convenience and reduced foreign exchange fluctuations.

But about one-fifth of Chinese companies chose to add about 3 percent in fees in transactions in other currencies, according to the survey.

Many Chinese companies were reluctant to tell their business partners in the United States and Europe to settle in yuan, according to Jenny Berlin, public relations manager at Western Union. Because settling in yuan is such a new possibility, many Western companies were unaware of the preference of their Chinese partners, she said.

Only about 0.24 percent of global trade was conducted in yuan payments in 2011, and it ranked 24th among currencies, according to the Society for Worldwide Interbank Financial Telecommunication, the transaction platform for international banks. The most used currencies are the US dollar, the euro and the Japanese yen.

China was responsible for about 11 percent of world trade in 2011, but this was mainly settled in US dollars. For companies from a third country, this means they are doubly exposed to the risk of currency fluctuation.

Sometimes it is simply easier for foreign companies to find buyers if they can settle in the Chinese currency, Berlin said.

Noel Quinn, HSBC's regional head of commercial banking Asia-Pacific, said as China develops a regulatory framework to open up and internationalize the currency, the bank has seen increased demand for the yuan in transactions.

"International businesses looking to benefit from China's growth must explore the benefits of using the yuan when transacting with their Chinese counterparts to take full advantage of discounts that may be available," Quinn said.

The yuan is on track to becoming a major trade currency by 2015, HSBC said.

In recent years, China has been promoting direct transactions between the yuan and other currencies to facilitate global use of the yuan and reduce dependence on the greenback.

Greater flexibility and the recent appreciation of the yuan will also increase willingness to sell dollars and hold more yuan, said Guo Tianyong, a professor of finance at the Central University of Finance and Economics.

The yuan has appreciated 1 percent this year, reversing a depreciation of as much as 1.6 percent in the year by late July, according to data compiled by Reuters.

Contact the writers at diaoying@chinadaily.com.cn and wangxiaotian@chinadaily.com.cn

(China Daily 11/13/2012 page1)