PETALING JAYA: The increasing use of the yuan in international trade poses little risk for Malaysia.
Bank Negara deputy governor Dr Sukhdave Singh said yesterday that anything that facilitated the growth of trade and investment flows between the Malaysian and Chinese economies would be good, and in this case, the internationalisation of the yuan was beneficial.
“We understand the need for China to adopt a gradual approach and providing itself the space to address any vulnerability that may emerge as a consequence of internationalising the yuan.
“But, we also know that as China develops its financial markets and its policy frameworks, greater openness would be synergetic in promoting the further development of its financial system and its economy, and of course the international role of the currency,” he said at the HSBC Forum on China Globalising.
He believed that if the Chinese policymakers were successful in managing the political, economic and financial trade-offs in moving to a global currency, than the 21st century may indeed very well be the century of the global yuan.
Sukhdave said that while the internationalisation of the yuan had gained significant momentum over the last year or so, to maintain its momentum or even accelerate it would depend very much on China’s political, economic and financial landscapes in the coming years.
“Policymakers in Malaysia are fully committed to strengthening economic and financial ties with China. As far as using yuan for international trade and investment is concerned, we have worked to put the necessary infrastructure in place and continue to improve on it to make it cheaper and more convenient.
“However, it is the private sector that must decide on the economics of using the yuan for international payments and receipts,” he said.
Sukhdave also noted that given the lack of global currencies choices had create an anomaly where a currency can continue to appreciate despite a large surpluses of it.
He believed the rise of the yuan could lead to a world where the global monetary system was less distorted because “a more multipolar monetary system should engender greater global financial stability”.
“If global liquidity was represented by more currencies, then the likelihood of any one currency being a determinant of global liquidity would be significantly reduced,” he said.
He said there were five pre-conditions for yuan to become a global currency – dominance in global trade, the country is a key global exporter of capital, had official support, backed by liberalised and developed markets and confidence in the currency and the economy, noting that China already had three of the fundamental factors.