China remains confident about yuan

China is confident that its currency, the yuan, can hold an important position in the global multiple currency system in the future, a vice governor of the country's central bank said over the weekend, signaling the country will continue to push for a more internationalized currency and market-based financial sector.

Diversification of the global reserve currency is a result of market selection. Driven by the market, international use of the yuan has been increased in recent years, Pan Gongsheng, a vice governor of the central bank, was quoted by news portal yicai.com as saying on Sunday.

"The industries and academic circle are confident that the yuan can take [an important] position in the global multiple currency system in the future," Pan was quoted by the report as saying at a forum held in Hangzhou, East China's Zhejiang Province on Saturday.

According to Pan, improvement of China's economic and political status and deepening of the country's financial reform are necessary conditions for China to realize its goal.

China has accelerated the pace of financial reform to enhance the global position of the yuan and reduce the reliance on the world's primary reserve currency, the US dollar.

However, analysts have questioned that the turbulence in the country's financial markets including the recent fluctuation of the currency market and the government's tough stance on debt defaults may slow down the country's exchange rate reform and the yuan's emergence as a global currency.

The yuan has slumped significantly since the beginning of the year especially after the country's central bank announced in March it would expand the daily trading band of the yuan's exchange rate against the US dollar to 2.0 percent above or below a daily reference exchange rate from its previous 1 percent limit.

Meanwhile, the government has also made it clear that it will no longer bail out firms which default on their debts. In March, Shanghai Chaori Solar Energy Science and Technology Co Ltd defaulted on interest payments for a yuan bond, becoming China's first-ever domestic bond default.

"The internationalization of the yuan is all about raising the confidence of the international investors in the yuan use. The overall direction of the country's financial reform won't change," Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times Sunday.

"The risks in the financial market may make the policymakers adjust the pace of the reform. The authorities are likely to push ahead the financial reforms while tackling the problems in the financial market," Bai said.

China launched the Shanghai free trade zone in September as a testing ground for financial reforms, including toward full yuan convertibility.

To raise the reputation of the yuan, China should not only increase the settlement of the yuan in foreign trade but also create more offshore yuan bond markets to allow overseas investors to trade the yuan more freely, Song Guoliang, a finance professor at the Beijing-based University of International Business and Economics, told the Global Times Sunday.

"Under the current condition, the government should also further simplify the review procedure for overseas investment especially real industry investment to reduce the pressure for the yuan demand," Song said.