Promotion of yuan to reduce foreign exchange volatility

BEIJING: China’s proactive promotion of the yuan’s international usage is in line with the economic transformation toward a more open development model.

The move is to reduce foreign exchange volatility and contain external shocks, according to officials and experts.

The evolution of the country’s economic growth model and opening-up is accompanied by its currency’s internationalisation, which is historically a rare experience for any country, according to Zhou Chengjun, director of the People’s Bank of China’s (PBoC) Financial Research Institute.

The yuan’s internationalisation process is also accompanied by the global reallocation of supply and production chains, he said at the 87th International Forum on China Reform.

“When the local currency has become a national means of payment, it can effectively reduce the dependence on other major currencies, such as the US dollar, in international investment and trade,” Zhou said.

The latest “RMB Tracker” monthly report on yuan progress toward becoming an international currency – put out by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT – showed that by September, the yuan had retained its position as the fifth most active currency for global payments by value, with a 2.19% share, compared with 1.95% a year earlier.

Overall, yuan payments value increased by 6.67% compared with August.

Zhang Ping, deputy director of the National Institution for Finance and Development, a financial think tank of the Chinese Academy of Social Sciences, said that reforming the money issuance mechanism in China could promote the country’s status in the global financial system.

Including treasury bonds in the central bank’s balance sheet is an option, which requires better coordination of fiscal and monetary policies.

So far, the government’s issuance of yuan-denominated treasury bonds as “safe-haven assets” for foreign investors has not yet been sufficient, and its volume should be expanded, Zhang said.

A PBoC paper issued in April showed that after China’s exchange rate reform on August 11, 2015, “the global pricing mechanism of RMB has gradually matured”, along with a strengthened linkage between the exchange rates of onshore and offshore yuan.

As the Chinese mainland has opened more channels to connect the offshore stock and bond markets, the “two-way “floating mechanism of yuan-denominated assets has improved.

“The internationalisation of the yuan has never sought to challenge or replace the US dollar,” said Zhou from the PBoC, adding that the world may need more price signals determined by other currencies to achieve the restructuring of global supply chains.

China’s move to promote yuan usage aims to form an equilibrium of exchange rate decided by global market transactions. — China Daily/ANN

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yuan , renminbi , People's Bank of China


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