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Tuesday, June 23, 2015, 09:53

Internationalization of yuan is gathering pace

By Felix Gao in Hong Kong

The steady emergence of the renminbi as an international currency holds the prospect of a range of potential benefits for investors and economies that can be achieved through continuing reforms and global cooperation, according to a report on renminbi internationalization.

An Atlantic Council report says the increasing role of the renminbi is a constructive development for international markets as capital account liberalization portends global economic rebalancing and sustainable growth. But for the process to reach maximum credibility and effectiveness, greater transparency, along with steady and credible institutional and regulatory reforms will be necessary in order to promote the currency’s acceptability, especially as the mainland’s growth moderates.

Continuing macroeconomic and macroprudential reforms will also form the foundation of a healthy renminbi financial system as governments and multilateral institutions increase their use of the currency, the report says.

“The currency’s internationalization is not an exclusive matter of mainland governance and policy. Given the unique nature of the reforms, active cross-border coordination and capacity building, coupled with the institutionalization of nondiscrimination policies by both mainland and its transatlantic partners, is necessary to support the development of the currency,” said Chris Brummer, C. Boyden Gray fellow at Atlantic Council.

“Doing so will not only bolster market liquidity and depth, but it will also help alleviate potentially significant regulatory and foreign policy irritants that threaten to undermine cooperation on one of the most important markets and economic developments of the 21st century,” he added.

Mark Boleat, policy chairman at the City of London Corporation, said: “As the international usage of the renminbi grows there will be a need for the offshore renminbi market to be served by a number of financial centers in different parts of the globe. We fully recognize the importance of international coordination on this, and are open to engagement with other market players to ensure a smooth internationalization process.”

Brummer noted that renminbi would probably be included in the International Monetary Fund’s (IMF) special drawing rights currency basket, currently made up of the US dollar, yen, pound and euro, in this year.

He said the IMF has declared that renminbi is no longer undervalued. Though the currency is still not fully freely usable, its process of internationalization is continuing. The stock connect with Shanghai, the mutual recognition of funds and the coming connect with Shenzhen are all accelerating the process.

Alex Manson, Standard Chartered’s group head for transaction banking, said renminbi is on a remarkable trajectory of internationalization and it’s turning into a new currency for international trade. Renminbi should be regarded as the next “G4” currency, he said.

The offshore renminbi trading increased 350 percent last year, data from Thomson Reuters’ foreign exchange electronic trading platform showed.

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