(People's Daily Online) - Beijing, July 24 - The Chinese
renminbi (RMB) will become the world's third largest currency
after the U.S. dollar and Euro within five years as the country
accelerates the promotion of its currency unit.
A report by the International Monetary Institute of Renmin
University of China and the Bank of Communications, published on
Sunday, said that the RMB internationalization index had risen
to 1.69 by the end of 2013 from 0.92 a year before.
The main impetus for the internationalization of the RMB comes
from cross-border trade settlements and direct investment.
In 2013, China's cross-border RMB trade settlement hit 4.63
trillion yuan (759 billion U.S. dollars), up 57.5 percent year
on year, and RMB direct investment totaled 534 billion yuan, up
90 percent year on year.
By the end of the fourth quarter of 2013, direct investments
settled in renminbi amounted to 533 billion yuan, (about $88
billion), an increase of 190% against that of the same period of
2012.
The RMB currently ranks fifth in interntional usage, according
to the report.
The offshore yuan market has been developing rapidly in recent
years, and this year the People's Bank of China (PBOC) signed a
memorandum of understanding regarding yuan clearing and
settlement arrangements with the central banks of the UK,
Germany, Luxembourg, France and South Korea.
By the end of 2013, the PBOC had signed currency swap agreements
involving a total of 2.57 trillion yuan with 23 countries and
regions, the report said.
Chen Yulu, president of Renmin University and member of the
central bank's monetary policy committee, said the offshore yuan
market in Europe has huge potential since major European
financial centres are competing for the market.
In spite of the rapid expansion of the RMB, it still faces four
challenges:
1. Lack of an efficient, safe and cost-effective offshore RMB
clearing system.
2. The Legal framework for an offshore RMB market has not been
established.
3. The offshore RMB financial products chain and the service
capabilities of financial institutions must function properly.
4. When offshore financial markets reach a certain size, this
will impact the onshore market interest rates and the exchange
rate formation mechanism, which will weaken the effectiveness of
monetary policy and bring new challenges to financial
regulation.
To resolve the problem, China has to build a safe, efficient and
low-cost offshore RMB clearing system as soon as possible.
In addition, regulators must create a legal framework for the
offshore RMB market and establish sound regulations to stop
money laundering and tax evasion via offshore yuan transactions.
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