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China signs yuan accords with France, Luxembourg

A surprise currency devaluation last week has also raised suspicions that China's economy could be performing worse than expected (AFP Photo/Peter Parks)

China's central bank said it has signed agreements for yuan clearing arrangements with France and Luxembourg, with the aim of promoting greater use of its currency overseas.

The People's Bank of China (PBoC) said it would designate Chinese banks as the yuan clearing institutions in the two European countries later, according to statements issued on Sunday.

China earlier this month named the Bank of China as the clearing bank for yuan dealings in Frankfurt, Germany, and the China Construction Bank in London. A top Australian official said last week that China will designate a clearing bank in Sydney.

The moves come as China seeks to make the yuan -- also known as the renminbi -- used more internationally in keeping with the country's status as the world's second biggest economy behind the United States.

China keeps a tight grip on the value of its currency and limits capital flows into and out of the country, but officials have pledged to make the exchange rate more flexible.

Yuan clearing in France and Luxembourg would allow companies and financial institutions to use the currency for cross-border transactions, as well as promote liberalisation of trade and investment, the PBoC said.

European countries are competing to become the dominant hub for yuan business in the continent.

Banque de France called the memorandum of understanding with the PBoC the "first step" towards creation of a yuan clearing and settlement system in Paris.

"It aims at enabling the safe and efficient settlement in renminbi in an open system covering transactions in the Eurozone or the neighbouring regions," it said in a statement.