RMB increases its influence in neighboring areas

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Last updated at: (Beijing Time) Tuesday, February 17, 2004

RMB increases its influence in neighboring areas

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The Renminbi (RMB) circulation in neighboring countries and regions is preparing the ground for its future goal of becoming a currency that can be exchanged freely on the international market, an official with the central bank told the Beijing-based Outlook news magazine recently.

The RMB, which is now being accepted by more and more people inHong Kong, Taiwan and neighboring countries, is tending to become a kind of regional currency, the official was quoted by Outlook assaying.

The RMB will gradually become the strongest currency in East Asia, according to an economist at Stanford University in the United States.

With the rapid development of China's foreign trade, more and more RMB are flowing out of China's mainland, which leads to overseas circulation and exchange of the currency in neighboring areas, according to the magazine.

In the Republic of Mongolia, 60 percent of the cash in local circulation is RMB, and in some major foreign exchange markets in Ulan Bator, capital of Mongolia, the RMB and US dollar are the twoforeign currencies with largest transaction amount, said the official.

In the neighboring Democratic People's Republic of Korea, the RMB is accepted in shops and restaurants as a strong currency, along with the US dollar and the euro.

In Vietnam, the RMB can be exchanged via unofficial banking, whose legitimacy has been recently acknowledged by the Vietnamese government, the official said.

In Hong Kong, the RMB has become the second-largest exchange currency after the Hong Kong dollar, and in Taiwan, the RMB will be legitimately exchanged after a new agreement is signed by mainland and Taiwan banks, the official said.

In Laos and Myanmar, the RMB is popular in some provinces bordering China, and Cambodia and Nepal have announced that the official circulation of RMB in their markets is welcome.

Wang Zhao, of the Development Research Center of the State Council, attributed the expansion of the influence of the RMB to the promotion of China' economic strength.

However, the RMB will still need five to ten years to become a currency as strong as the Japanese yen or euro. When that time comes, it will be freely exchanged, he said.

The RMB still has a long way to go to become an international currency that can be freely exchanged under both current account and capital account, said a researcher with the Shanghai banking supervisory bureau, noting that China still puts strict restrictions upon exchanges under capital account.

With the further development of the Chinese economy, the RMB may become a regional strong currency, said Wang Zhao, who cautioned against realizing this goal through appreciation of the RMB.

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