Forward settlements in China's currency, the RMB, accounted for less than two percent of the country's total trade volume, said a senior official with the China Banking Regulatory Commission.

Zhang Guangping, director of the department for coordination of supervision and administration of business innovation of the CBRC, made the remarks in a forum held in Fuzhou last week.

China's foreign trade volume topped 1760.7 billion U.S. dollars in 2006, according to official data.

"China's RMB forward settlement transaction volume totaled no more than nine billion U.S. dollars in 2003, representing merely 1.06 percent of the year's trade volume," said Zhang.

"The proportion reached around 1.5 percent in 2004 and 2005 while the world's transaction volume of forward settlement accounted for 150 percent of global trade volume," Zhang said, "which means that the business has huge potential in China."

The narrow fluctuation range of the foreign exchange rate and a lack of experience in hedging -- compensatory measures taken to counterbalance possible losses -- are the main factors in this phenomenon, Zhang explained.

China dropped its currency peg to the U.S. dollar in July 2005 and linked the yuan to a basket of foreign currencies, allowing it to float in a 0.5 percent band around the official central parity.

Source: Xinhua