The renminbi is on track to become the
third-largest international currency behind the US dollar and the euro within
five years as China accelerates its promotion of the yuan, said a Renmin
University of China report released on Sunday.
Last
year, RMB cross-border trade settlement amounted to 4.63 trillion yuan ($746
billion), up 57.5 per cent from 2012. It accounted for 2.5 per cent of
cross-border trade settlement worldwide, the report said.
By the
end of the fourth quarter of 2013, direct investment settled in renminbi
amounted to 533 billion yuan, 1.9 times the same period in 2012.
The RMB
is currently the fifth-most widely used currency internationally. The British
pound is third and the Japanese yen fourth.
The
offshore yuan market has been developing rapidly in recent years, and this year
the People's Bank of China signed a memorandum of understanding regarding yuan
clearing and settlement arrangements with the central banks of the UK, Germany,
Luxembourg, France and South Korea.
Chen
Yulu, president of Renmin University and member of the central bank's monetary
policy committee, said the offshore yuan market in Europe has huge potential
since major European financial centres are competing for the market.
Wei
Jianguo, vice-chairman of the China Center for International Economic
Exchanges, suggested the government establish additional centers in places such
as Dubai, South Africa and Latin America.
In
spite of the rapid expansion of the RMB, its internationalisation still faces
many challenges including technical difficulties using the currency globally.
"To
resolve the problem, China has to build a safe, efficient and low-cost offshore
RMB clearing system as soon as possible," Chen said.
"In
addition, the regulators must create a legal framework for the offshore RMB
market and make sound regulations to stop money laundering and tax evasion via
offshore yuan transactions."
At
present, Chinese financial institutions are relying mainly on traditional
offshore yuan businesses such as RMB trade settlement and deposit.
They
have to innovate on products to deepen and widen the offshore RMB market, Chen
said.
By the
end of 2013, the outstanding volume of international bonds and bank notes
denominated in renminbi rose 24.9 per cent year-on-year to $71.9 billion.
The
issuers of RMB-denominated bonds started to expand out of Hong Kong, with
countries such as Japan and Canada joining in.
As
Chinese economic power continues to grow, an increasing number of countries
have become willing to accept the renminbi as a reserve currency. By the end of
2013, the PBOC had signed currency swap agreements involving a total of 2.57
trillion yuan with 23 countries and regions, the report said.
Jiang
Xueqing
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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