Yuan internalization rebounds

Trade tension won’t stop trend: experts

The internationalization of the yuan rebounded strongly in 2017 after a cyclical decline, said a new report, and experts said the trend will continue despite the ongoing US-China trade tension.

As of the fourth quarter of 2017, the RMB internationalization index reached 3.13, up 44.8 percent year-onyear and back to the peak level reached in 2015. The rate is approaching the internationalization level of the yen and the pound, according to the 2018 RMB Internationalization Report released by the International Monetary Institute under Renmin University of China on Saturday.

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, told the Global Times on Sunday that the progress of the yuan’s internationalization has been evident in several ways in the last two years.

“The international usage of the yuan in financial activities has expanded greatly in recent years following the establishment of financial link mechanisms,” Xi said.

Xi mentioned the bond trading link, the government’s removal of the investment cap in the stock link programs between the Chinese mainland and Hong Kong, and the potential launch of a stock connect program between Shanghai and London.

“Setting up these mechanisms and the removal of the investment cap have increased the willingness of overseas institutions to hold yuan assets,” Xi said.

Data from the People’s Bank of China, the country’s central bank, showed that by the end of 2016, more than 60 countries and regions had included the yuan in their foreign exchange reserves, and the yuan held its position as the sixth-ranked global payment currency with a share of 1.68 percent in December 2016.

Trade spat factor

However, the report also noted that finding a solution to the ongoing SinoUS trade friction would help significantly with sustainable development of the yuan’s internationalization.

Liu Xuezhi, a senior macroeconomics expert at Bank of Communications, noted that the trade dispute between China and the US would cast a shadow on the yuan’s internationalization and use of the yuan in trade settlement, but he said that this would have only a “limited” effect overall.

“The yuan might be burdened with further depreciation pressure amid the ongoing trade row, but as the yuan is now pegged against a basket of currencies, large-scale depreciation is unlikely,” Liu told the Global Times on Sunday.

Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, agreed with Liu’s comment. “I think the yuan’s depreciation will be limited in the future as it has already plunged a lot in recent weeks.”

“The yuan’s internationalization can’t be reversed by external factors like trade disputes,” Liu noted.

Zhou said the trade dispute could also have some positive effects, such as encouraging yuan-borrowing activities, and the launch of more panda bonds.

The report pointed out that the function of the yuan as an international currency should also be brought into play to promote trade and investment among countries along the routes of the China-proposed Belt and Road initiative.

“The yuan’s internationalization can’t be reversed by external factors like trade disputes.” Liu Xuezhi Senior macroeconomics expert at Bank of Communications