RMB to become world's 3rd largest in middle term

China's currency renminbi, or the RMB, is expected to become the world's third largest currency in the middle term under an optimistic scenario, the International Monetary Institute (IMI) under Renmin University of China (RUC) said Tuesday.

In the next three to five years, the RMB is expected to be second only to the U.S. dollar and the euro, given the material foundation provided by China's solid growth and the robust performance of the currency, IMI Deputy Director Tu Yonghong told a seminar here.

The institute released its RMB Internationalization Report 2014 at the seminar, using the RMB International Index (RII) to measure the internationalization of the currency.

The RII comprehensively takes the currency's functions of pricing, settlement and international reserves into account. The internationalization level of currencies, from low to high, ranges from zero to 100.

The RII reached 1.69 at the end of 2013, significantly higher than 0.92 at the beginning of the year, Tu said.

Measured by the same compiling methods as used for the RII, the U.S. dollar's internationalization index stood at 52.96 in the fourth quarter of 2013, followed by the euro's 30.53, the British pound's 4.30 and the Japanese yen's 4.27, Tu said.

Zhao Xijun, associate dean of RUC School of Finance, said the RII is expected to reach 20 in the long term, amid the corresponding slide of the U.S. dollar's index.

As a result, the RMB will act as a more solid international currency and the impact of the depreciation of the U.S. dollar will be minimized.The asset allocation of China's foreign reserves will also be more diversified, Zhao said.