(Yicai Global) Jan. 15 -- The internationalization of the yuan is a long-term strategy. It should not aim at a higher global ranking among major currencies, nor should it aim at rivaling some currency, said a top official of China's central bank. At present, there is already substantial demand for international use of the yuan in the market.
There is plenty of room for the internationalization of the yuan, said Yin Yong, vice governor of the People's Bank of China, the country's central bank, at the second Jinjialing Fortune Forum yesterday. "An international currency has three main functions: a medium of exchange, a unit of account and a tool of value preservation. Different participants have different focuses on any of those functions depending on their needs. However, on the whole, the more cost-saving it is, the more basis it will have to become an international currency," Yin said.
It is with this in mind that the PBOC promotes internationalization of the yuan from three dimensions. Internationalization of the yuan is a long-term strategy. With the multi-polar direction of the world, it is possible for several major currencies to coexist and work together. It will not aim at the international currency rankings of the yuan nor should it be a substitute for some currency, he said.
There is a huge market demand for expanding international use of the yuan. China is the world's largest trading nation, but the yuan accounts for only about 25 percent of its cross-border settlements, he noted. The use of the yuan in the international arena still lags far behind the standing of the Chinese economy in the global economy. The use of the yuan in international clearing accounts for about 1.8 percent and for just over 1 percent of global foreign exchange reserves.
From the perspective of optimizing global investment allocation, there is also a huge market demand for international use of the yuan. At present, China's stock market and bond market rank among the top in the world. On July 3, 2017, Bond Connect, a new mutual market access scheme that allows investors from the Chinese mainland and overseas to trade in each other's bond markets was unveiled. By the end of last November, 112 institutions had entered the market through the Bond Connect scheme with CNY80 billion (USD12.4 billion) invested.
"Moreover, due to the changing international relations, some countries abuse the status of the dominant currency and use their domestic laws for long-arm jurisdiction. Such measures have made more countries and regions to turn to more responsible alternative currencies," Yin said, adding that at present, many countries and regions show greater expectation of and demand for the yuan.