Globalized RMB to stabilize world economy

The globalization of the yuan, or renminbi, will not only benefit the Chinese economy, but generate global economic stability, a senior banker said.

The yuan did not depreciate during the 1997 Asian financial crisis or the 2008 global financial crisis, helping stabilize the global economy, Tian Guoli, chairman of the Bank of China, said at a forum in London last week, according to the Friday edition of the People's Daily.

China's economy ranks second in the world and its trade ranks first, so it is thought that use of the yuan in cross-border trade will be a mutually beneficial move for China and its trade partners.

The yuan has acquired basic conditions to become an international currency as China's gross domestic product took 12.4 percent of the world's total and its foreign trade 11.4 percent of the world's total in 2013, Tian said.

According to the central bank, yuan flow from China hit 340 billion yuan ($55.74 billion) in the first quarter of 2014, replenishing offshore yuan fluidity. The balance of offshore yuan deposits hit 2.4 trillion yuan at the end of March, 1.51 percent of all global offshore deposits. Offshore trade between the yuan and foreign currencies doubled in the first quarter from the fourth quarter of last year.

Analysts widely forecast five steps in yuan internationalization: yuan used and circulated overseas, yuan as a currency of account in trade, yuan used in trade settlement, yuan as a currency for fundraising and investment, and yuan as a global reserve currency.

Already, some neighboring countries and certain regions in developed countries are circulating yuan, indicating the first step has been basically achieved.

Data provider SWIFT's renminbi tracker showed that in May, 1.47 percent of global payments were in yuan, a tiny amount compared to the global total but up from 1.43 percent in April. This indicated progress in the second and third steps.

Some countries in Southeast Asia, Latin America and Africa have or are ready to take yuan as an official reserve currency. It indicated the fourth and the fifth steps are burgeoning.

Investors are also optimistic about renminbi globalization. Bank of China's global customer survey shows that over half of the respondents expect yuan cross-border transactions to rise by 20 to 30 percent in five years. And 61 percent of overseas customers say they plan to use or increase use of yuan as a settlement currency.

Li Daokui, head of the Center for China in the World Economy under Tsinghua University, said renminbi internationalization is a long-term process and should be made gradually based on China's financial reforms, including freeing interests and reforms on foreign exchange rates.

Dai Xianglong, former central bank governor of China, forecast that it will take about 10 to 15 years to achieve a high standard of renminbi internationalization.

Among the latest moves toward renminbi internationalization is the naming of two clearing banks to handle yuan business overseas.

The central bank announced last Wednesday that it has authorized China Construction Bank to be the clearing bank for yuan business in London, and the next day named the Bank of China as clearing bank for yuan business in Frankfurt.