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Yuan internationalization relies on market choice

(People's Daily Online)

15:54, June 07, 2012

“The internationalization of the yuan ultimately depends on market forces,” People’s Bank of China Governor Zhou Xiaochuan said in a recent interview in Washington, attributing the growing international use of the currency to China’s increasing comprehensive strength and financial market boom.

Industry insiders said that the growing acceptance of the yuan as an international currency is a result of economic globalization and China's own development needs. The yuan internationalization is a long process, so the country must not act with undue haste, or carry out another “Great Leap Forward” just to “follow the fashion.” It should make practical efforts to gradually enhance the role of the yuan in the international monetary system in a down-to-earth manner.

Growing international use

There are two basic reasons for the rising international status of the RMB. First, China’s economy has been growing rapidly. Second, China did not devalue its currency during the late 1990s Asian financial crisis, earning great acclaim from all over the world, particularly from its neighbors. The yuan has since been used in cross-border trade settlement.

Statistics showed that trade settled in yuan as a percentage of total China trade reached 10 percent in 2011. HSBC predicted that in just three years, the percentage will grow to 30 percent, and the yuan settlement receipt-to-payment ratio will reach 1:1.7, indicating a more balanced pattern of the yuan outflow and backflow. The yuan internationalization serves China's needs, and provides the world with a new stable and convenient trading currency, which will promote the reform of the international monetary system.

“Trade settled in yuan now accounts for 0.3 percent to 0.4 percent of total world trade, which is a very small percentage. We should continue to encourage the use of yuan in cross-border trade and investment settlement,” said Jin Liqun, chairman of China Investment Corporation.

In the long run, the yuan is bound to become an international currency due to market demand.

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