Promote yuan abroad now: senior official

08:27, January 11, 2010      

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Now is a favorable time to expand the yuan globally, Dai Xianglong, president of the National Council for Social Security and former governor of the central bank, said over the weekend.

The country's trade surplus, which helps create huge foreign exchange (forex) reserves, and a stable yuan are conducive to boosting the currency's internationalization, Dai said at the 14th China Capital Market Forum held in Beijing.

The country's trade surplus in 2009, though dipping 34.2 percent from a year earlier, stood at $196.06 billion, according to data released by the General Administration of Customs Sunday. And China's forex reserves hit $2.27 trillion by the end of September, according to data from the State Administration of Foreign Exchange.

The yuan has been pegged to the dollar while referencing a basket of other currencies since forex reform was launched in July 2005. The yuan's central parity rate against the dollar was 6.8279 Friday.

"China's balance of payments is likely to remain in surplus in the next few years, which makes (yuan) depreciation a low-probability event," Barclays Capital said in a research report in December.

Dai offered concrete measures such as using the yuan to pay China's trade deficit with some countries and regions, and permitting Chinese enterprises to directly use the yuan to invest overseas.

However, other experts showed concern over the acceptability of the yuan as an international currency globally.

"Market expectations over the yuan's internationalization is oversimplified and overoptimistic," Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times.

The yuan has appreciated more than 20 percent since the forex reform, and market expectation of the yuan's appreciation has been growing, Tan said, which has led some to believe the yuan will likely prevail as an international currency.

But the acceptability of the yuan actually rests with other countries, rather than domestic expectations of a rising yuan, she added, noting that the implementation of cross-border yuan trade settlement has not gone as well as expected.

The Bank of China, which occupies the largest market share in the cross-border yuan trade settlement transactions, had netted over 1.1 billion yuan ($161.09 million) by December from cross-border yuan settlement deals since its first transaction July 6. The figure fell shy of market expectations, however.

Lu Zhengwei, a senior economist at the Industrial Bank, shared Tan's opinion, saying that even the Southeastern Asian countries which are more likely to conduct cross-border yuan trade settlement with China saw little popularization of the yuan.

Lu believes problems remain unsolved for the yuan to become an international currency. The issuance of 6 billion yuan ($878.68 million) in sovereign bonds by the Ministry of Finance in Hong Kong in September is a historic move to ensure the inflation-proofing and appreciation of the yuan, Lu said.

But there is no transparent and clear schedule for issuing such sovereign bonds in the future, he said.

The yuan is now widely believed to be solely pegged to the dollar, which hampers the realization of the yuan's internationalization, Tan said.

Source: Global Times
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