Although the Chinese yuan is estimated to enjoy more popularity with the launching of the China-ASEAN Free Trade Area (CAFTA), which covers a population of 1.9 billion and a $6.5 trillion GDP, its inconvertibility might constrain its usage for trade settlements within the region, analysts said Sunday.

"We expect to see more yuan-denominated transactions next year after the introduction of the free trade area between China and ASEAN nations," Tarisa Watanagase, Bank of Thailand Governor Tarisa Watanagase, told The Nation on December 17.

Chinese currency is still far from internationalization due to its inconvertibility deterring free capital flow, said Tan Ruyong, a financial professor at Shanghai University of Finance and Economics.

The yuan is one of the dominant currencies in Southeast Asian nations due to China's strong economy, said Li Xiaogang, director of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences.

Li explains that the trail-basis yuan-denominated trade settlement launched in five pilot Chinese cities in July last year is not an ideal situation as some trading companies are only willing to settle in yuan when trading with China.

Other analysts are rather optimistic. "I estimate that the yuan will become popular (for trade settlement) among Southeast Asian nations within five years," Yang Fan, a professor at China University of Political Science and Law, told Guangzhou Daily Sunday.

Yang, however, opposes the idea of a fully-convertible yuan in the region, "the convertibility will increase the risk of speculation, which undermines its financial stability. In addition, free convertibility will also provide increased opportunity for money laundering," Yang said.he increasing use of yuan in trade settlements by Southeast Asian nations makes it difficult for China's central bank to control the currency. If more yuan paid overseas is invested back into China's real estate and stock markets, this could result in rising domestic prices, said Tan.

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