April 2 (Bloomberg) -- China’s leaders, increasingly concerned about the nation’s $740 billion of U.S. Treasuries, are making it easier for trading partners and consumers to do business in yuan.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. More such arrangements are being planned so importers can avoid paying for Chinese goods with dollars, the central bank said. In Hong Kong, which has pegged the currency to its U.S. counterpart since 1983, stores from Park’n Shop supermarkets to jewelers accept yuan.

Anxiety Increased

Wen said on March 13 that China, the world’s biggest holder of foreign exchange reserves, wants guarantees for the safety of its U.S. assets. The Fed last month announced a $1.15 trillion plan to buy Treasuries and mortgage-related bonds, boosting supply of the currency.

Anxiety increased in the past year because the dollar’s gains were driven in part by investors fleeing riskier assets after the bankruptcy of Lehman Brothers Holdings Inc. in September froze credit markets. The PBOC said March 31 its swaps were designed to help developing nations running short of dollars “cope with the current crisis.”

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, rallied 18 percent in the past year. It dropped 2.9 percent last month as the Fed started buying Treasuries.

The yuan’s 12-month non-deliverable forwards rose 3.7 percent from a month earlier to 6.75, showing traders expect the currency to appreciate, according to data compiled by Bloomberg.

Super Currency

PBOC Governor Zhou Xiaochuan asked the International Monetary Fund on March 23 to expand the use of so-called Special Drawing Rights, which are valued against a basket of currencies, and move toward a “super-sovereign reserve currency.” G-20 members Russia and Indonesia supported the proposal, which would reduce the volatility of reserves.

“A rapid collapse in the dollar system will cause damage to those who hold the most dollar assets,” said Lee. The proposal is “a strong warning for the U.S. to protect the value of Chinese assets,” he said.

Dollar Dominance

The dollar made up 64 percent of the world’s $6.71 trillion foreign-exchange reserves at the end of last year, down from 64.4 percent in September and 72.7 percent in June 2001, IMF data shows. The yuan can’t be a reserve currency because it isn’t fully convertible.

Yuan Trials

“The next step will probably be to allow use of yuan in trade with more regions or nations,” said Chan Wing Kee, managing director of Hong Kong-based Yangtzekiang Garment Ltd., which makes GAP and Levi’s clothes. “I’m pretty sure the yuan has more potential to strengthen than the dollar, the euro, the pound and the yen.”

Indonesian companies will be able to buy Chinese goods using yuan for the first time after last month’s 100 billion yuan currency swap, Bank Indonesia Deputy Governor Hartadi Sarwono said yesterday in Jakarta.

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