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Free AccessMNI EXCLUSIVE: Yuan Internationalisation To Proceed Gradually
BEIJING (MNI) - China will not rush yuan internationalisation but treat it
as a gradual and long-term strategic target, as it seeks to maintain currency
stability and limit financial risks, economists, officials and government
advisors told MNI.
Too rapid a push for internationalisation could allow fast expansion of
offshore yuan market which may destabilise the onshore market for the currency,
Lian Ping, chief economist at Bank of Communications, said. Opening up China's
capital account, a necessary precondition for internationalisation, must also be
managed cautiously.
"Yuan internationalisation will lag China's share of the world economy and
China's economic globalization for a long time," he said, noting that the
process will challenge the dominance of the dollar and meet many obstacles.
China halted or even reversed moves towards internationalisation from 2015,
when the People's Bank of China started to tighten capital controls to limit
expectations for depreciation of the currency. Officials refer to this cautious
stance of the yuan internationalization using the phrase "canal forms when water
comes."
Although pressure on the yuan has eased and the country has taken measures
to attract foreign investors, policymakers continue to tread with care. In a
document released in February, the PBOC stressed it would push forward in a
"persistent and continuous" way, but would "control the strength and pace" od
yuan internationalization according to economic and financial circumstances.
--FOREIGN INVESTORS
China is taking measures to expand the range of yuan-denominated assets
that foreign investors can hold. Chinese RMB-denominated government bonds and
debt issued by the state-owned policy banks have been included in the Bloomberg
Barclays Global Aggregate Index and MSCI has added more Chinese mainland shares
to its Emerging Markets Index.
Falling interest rates and a more stable yuan will also prompt foreign
investors to issue more yuan-dominated debt in China, according to Lian.
"The country has recently started to lift some capital control measures and
financial opening should go before yuan internationalisation," said Chen Daofu,
deputy director at the Financial Research Institute of the Development Research
Center of the State Council.
Officials also see China's continent-crossing One Belt, One Road Initiative
as a vehicle to spread use of the yuan. This is particularly so because China
will provide investment and loans to countries along the route, said Lian.
Yang Xiaoping, head of the PBOC's branch in Kunming, capital of Yunnan
province, an important hub for One Belt, One Road, told MNI more policy support
is needed for cross-border yuan payments.
"The country should persist in moving towards the convertibility of its
current account, steadily open up its capital account and enhance cross-border
yuan payment infrastructure," Yi suggested, although he added that regulations
should be also improved to prevent risk that could be caused by capital flight.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.