China will begin direct trading between its yuan currency and the euro starting on Tuesday, the national foreign exchange market's operator said, as Beijing seeks to broaden the unit's global usage.
The China Foreign Exchange Trade System already offers a platform for yuan-euro transactions but direct trading means the US dollar will not be used as an intermediary currency to calculate rates, according to a statement released Monday.
The market operator said the move aimed to promote bilateral trade and investment, facilitate the use of yuan in cross-border trade and lower conversion costs.
In June, China started direct trade between the yuan and Britain's pound, one of several currencies to be included in a streamlined regime.
China has long had direct currency trade with the United States, and in recent years has added Japan's yen, the Australian dollar, the New Zealand dollar and Malaysian ringgit.
Beijing keeps a tight grip on the capital account -- investment and financial transactions, rather than those related to trade -- on worries that unpredictable inflows or outflows could harm the economy and reduce its control over it.
But China is seeking greater use of the yuan -- also known as the renminbi (RMB) -- in line with its status as the world's second-largest economy and to challenge the US dollar, analysts say.
"Direct trading brings together the RMB with the world's second-most actively traded currency and is a significant step in (the) RMB's globalisation," said Ryan Song, head of markets for China at British bank HSBC, which is acting as a market maker for the new pair.
"The trade and investment ties between China and the European Union, as two of the world's major economies, can be further strengthened through the greater convenience of direct trading in this pair," he said in an HSBC statement.
The yuan closed at 7.8085 to the euro on Monday, according to the China Foreign Exchange Trade System.