Yuan on path to becoming reserve currency

Stock market Connect schemes, Belt and Road Initiative have driven wider use of the yuan

China is making steady progress in the internationalisation of the yuan that will eventually result in it emerging as one of the leading global trade, investment and reserve currencies, Helen Wong, chief executive for Greater China at HSBC, told Gulf News in a recent interview.

“The People’s Bank of China [PBOC, China’s central bank] is committed to accelerating the process of internationalising the RMB (yuan). We are already seeing more people investing in China using RMB, including central banks and sovereign wealth funds. Once you have more investors, it means more people outside China are getting access to the currency, catalysing its international use,” said Wong.

Wider use of the yuan and its internationalisation is gaining momentum. In stages, it involves using the currency for trade settlement, investment purposes and ultimately making it a reserve currency.

“We have been doing RMB surveys yearly for more than six years. In 2017, 32 per cent of more than 2,500 businesses in 19 markets used RMB for trade settlement, up from 17 per cent in 2015,” said Wong.

Capital markets boost

The use of yuan in investments has grown significantly because China has opened its doors further. “In the course of [the] last three years, we have seen the setting up of the Shanghai–Hong Kong Stock Connect and the Shenzhen–Hong Kong Stock Connect. The Bond Connect scheme launched last year has also further opened up access to China’s Interbank Bond Market. That means there are more ways for foreign investors to invest in RMB-denominated securities in China,” she said.

Shanghai- and ShenzhenHong Kong Stock Connect schemes allow international investors to trade Chinese shares via Hong Kong, affording investors around the world direct access to most listed companies traded on the mainland.

China is pursuing its plans for ‘Shanghai–London Stock Connect’ scheme. Last week China published rules for a cross-listing programme between exchanges in Shanghai and London, clearing the way for companies to plan to debut on each other’s bourses.

Last year’s establishment of Bond Connect, a trading link connecting global investors with China’s $9.6 trillion (Dh35.26 trillion) Interbank Bond Market, has been well received. Foreign holdings of Chinese bonds increased by $4.4 billion in September, marking the 19th consecutive month of inflows.

China’s rapidly expanding bond market is the world’s third-largest, but foreign participation has been limited: international investors own just over 8 per cent of China’s government bond market, compared to over 10 per cent in Japan, nearly 30 per cent in the UK, and over 40 per cent in the US. The Chinese bond market’s gradual opening will offer abundant opportunities to issuers, investors, and all intermediaries in between.