Settle up in yuan nationwide, central bank advisor says

08:49, April 09, 2010      

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By Li Qiaoyi

The government should not continue yuan cross-border trade settlement trials, but instead ought to expand the yuan settlement program across the country soon to promote the yuan's role as a global currency, a central bank advisor said Thursday.

Concerns remain that some government departments are not yet prepared to launch the yuan settlement program nationwide. But that shouldn't be an issue, as rolling the program out would pressure the departments into achieving readiness, Xia Bin, director of the Financial Research Institute at the Development Research Center of the State Council, stated during the first Halter Financial Summit which started Thursday in Shanghai and ends today. Xia joined the central bank's monetary policy committee in late March with other two academics.

The yuan cross-border settlement trial started in July 2009 in five cities including Shanghai and four cities in Guangdong Province. The government has mulled expanding it by adding more pilot regions. More cities in Jiangsu and Zhejiang provinces are reportedly likely to be chosen as the second batch of pilot cities.

Xia said China can broaden usage of the yuan by establishing an offshore market allowing free transactions to be conducted, while Chinese companies, financial institutions and the Ministry of Finance could issue more yuan-denominated bonds.

But the yuan has a long road to really becoming an international currency, he said. "The proportion of the yuan in global official reserves may see a slow increase of 1 or 2 percent after 15 to 20 years, while the overall picture remains hard to change," with currencies such as the dollar and the Euro expected to continue to play a predominant role as international currencies, he said.

"The renminbi will join the ranks of potential international reserve currencies. That's a long way off, probably decades off," said Pieter Bottelier, former chief of the World Bank's Resident Mission in China.

There is a long way ahead "for the renminbi to become a fully serviceable international reserve currency like the dollar is at the present time," as it is not easy for China to go much further in the liberalization of its financial system, Bottelier said. At the current stage, to promote the international use of the yuan as a trade settlement currency and a base for the East Asia bond market is more realistic, he said.

Source: Global Times


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