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Wednesday, April 6, 2016, 20:08

Renminbi to lead world by 2030: Survey

By Sophia Luo

Renminbi to lead world by 2030: Survey
This March 21, 2009 file photo shows a pedestrian walking past a billboard showing Chinese yuan (top center ), the Hong Kong dollar (right ) and US dollar currency signs in front of a building in Hong Kong. ( AFP PHOTO / Files / TED ALJIBE)

The renminbi will become one of the top three major international currencies by 2030, together with the US dollar and the pound, while the Hong Kong dollar faces a bleak future and will be phased out eventually, predicts a joint survey by the London Business School and the University of Hong Kong.

The survey, conducted in January and February among 225 Chinese mainland and Hong Kong business executives, found that 84 percent pinned high hopes on the renminbi to be a serious contender as a world currency within 10 years or less.

More than half of the respondents said they believe the renminbi should be accepted more widely in shops and leisure outlets in the SAR, which may greatly help decrease the currency transaction costs for the city, whose tourism sector is highly reliant on mainland tourists.

However, despite the growing popularity of the renminbi, the Hong Kong dollar still retains its allure, with more than 60 percent of respondents saying they prefer the local currency  for transactions.

"At the moment, Hong Kong has a more transparent and better established institutional basis supporting its currency, while the Chinese mainland is still undergoing financial liberalization, and the renminbi remains limited in its convertibility. So there is some way to go before it can be freely used and traded,” said Linda Yueh, adjunct professor of Economics at London Business School.

But the preference for the Hong Kong dollar could well be short-lived, some 62 percent of executives hold the view that the separate currency will come to an end once the "One Country, Two Systems" arrangement for Hong Kong is terminated, which is slated for 2047.

"It’s interesting that most respondents see a limited future for the Hong Kong dollar as the renminbi gains in time,” said Yueh. “Whether the end of the 'One Country, Two Systems’ arrangement and of the Hong Kong dollar as a separate currency is good or bad for the city's economy will depend more on the structure of the economy rather than just the currency.”

The yuan remained the fifth most active currency for global payments by value with a share of 1.76 percent in February, Reuters reported, citing global transaction services organization SWIFT .

The currency has reached nearly 40 percent adoption across financial institutions worldwide, an increase of 18 percent since 2014, with the strongest growth occurring in the Americas, according to SWIFT’s monthly RMB Tracker released on March 31.

Even though the renminbi is on course to become a fully convertible international currency, for it to finally replace the Hong Kong dollar would be a process involving a great degree of difficulty and would take quite a long time, said a Beijing-based financial strategist on a mainland question-and-answer website called Zhihu, akin to Quora.

The likely routes may include strengthening the influence of the renminbi in determining the exchange rate of the Hong Kong dollar by gradually depegging it from the greenback, speeding up the renminbi's exchange rate liberalization, and paving the way for the comprehensive opening up of cross-border financial markets. Only when all this is in place will it be time to put the issue of phasing out the Hong Kong dollar on the agenda, said the strategist.

sophia@chinadailyhk.com

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