China is reconsidering its strategy for the internationalization of the yuan and planning for more policy support after completing a comprehensive review, a senior central bank official said.
“As everybody knows in the past, the internationalization of the RMB [yuan] sticks to the market principles,” said Zhu Jun (朱雋), director-general of the People’s Bank of China’s international division, at the Bund Summit in Shanghai on Saturday. “The role of the authorities was mainly focused on removing the policy obstacles for the free use of the currency. At this moment, we think there are some kinds of complications in the domestic and overseas situations.”
Zhu said that the government could be more proactive with policy support to facilitate the role of the markets.
Photo: Bloomberg
For instance, the central bank could improve bilateral currency swap agreements to better promote trade and investments, and try to coordinate various means of yuan cross-border settlements and payments infrastructure, Zhu said.
The yuan rallied to the strongest in more than two years earlier this week, aided by weakness in the US dollar and China’s economic recovery from the COVID-19 pandemic.
The prospects of a victory by Joe Biden over US President Donald Trump in the upcoming US election are also supporting the currency. Trump’s trade dispute with China last year sent the currency to its lowest since 2008.
The authorities would remove existing obstacles for the yuan’s internationalization, with a steady liberalization of the capital account, increasing the yuan exchange-rate flexibility and improving liquidity in the bond market, Zhu said.
While China over the years has made some progress — promoting offshore yuan trading, winning official reserve-currency status from the IMF and introducing commodity contracts priced in yuan — the yuan is a small player on the global stage, with 2 percent market share.
Although a steady opening of China’s financial markets to overseas investors has lured some inflows, foreign ownership of mainland stocks and bonds is still relatively minor. China’s capital account, a term for the flow of funds across borders, remains subject to significant regulations on the transfer of the yuan.
Separately, central bank governor Yi Gang (易綱) on Saturday said that the reform of the yuan exchange-rate formation mechanism and the internationalization of the currency should be jointly promoted with the financial opening.
“The yuan internationalization should be market-oriented,” he said. “The regulator’s main job is to reduce restrictions on the cross-border use of the currency, and let it take its own course.”
The increasing spillover of US-China tensions into the financial sphere has ignited a fresh push by China to promote the global use of the yuan.
Some government officials including Chinese Securities Regulatory Commission Vice Chairman Fang Xinghai (方星海) have urged an acceleration of yuan’s globalization in the past few months.
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