China's central bank is considering establishing a trial trading platform that will make letters of credit (L/Cs) less expensive for some Chinese businesses.

The People's Bank of China (PBC) is considering establishing the platform within the China Pilot Free Trade Zone in Shanghai to promote trade financing.

Expected benefits

If established, the platform is expected to promote the internationalisation of the renminbi as well as Shanghai's role as an international financial centre.

The US dollar benefited from a similar trading platform in New York when becoming a global currency.

Lower costs

The platform is also expected to reduce the cost of L/Cs for both foreign and Chinese banks and lower financing charges for manufacturers in China.

One analyst said that although major Chinese banks have their own trade finance services, the banking system currently lacks the kind of integrated platform envisaged for Shanghai's free trade zone.

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