The yuan will be used in transactions with neighboring trade partners as part of a pilot project - in what could be the first step on the road to making it an international currency.

The yuan will be allowed to be used for settlement between the Pearl and Yangtze river delta regions and the special administrative regions of Hong Kong and Macao, the State Council, or the Cabinet, said in a statement yesterday.

The Guangxi Zhuang autonomous region and Yunnan province will be allowed to use the yuan to settle trade payments with ASEAN (Association of Southeast Asian Nations) members.