The State Council has recently announced its currency RMB will be used to settle cross-border transactions on a trial basis. The trials will begin in five Chinese cities. Banking insiders welcome the move, saying this is a positive step towards making the RMB a more international currency.
Construction is in full swing for the 2010 World Expo in Shanghai. As China's financial hub, the city now carries the country's ambitions to become a global financial powerhouse, and the goal is to do it by 2020.
One pre-condition for an international financial center is to have a fully convertible currency, a target that still seems somewhat remote for China. But a recent decision by the country's policy makers to allow use of the RMB to settle cross-border transactions in Shanghai and four other Chinese cities has been well received by many banking experts at a forum in Shanghai.
Yang Zaiping, Executive Vice President of China Banking Association, said, "The internationalization of yuan is a very necessary step to push forward. US dollar, as a single international reserve currency, has unbalanced the world economy. The diversification of the international currency should be the long-term direction. Though yuan cannot be compared to the dollar at the moment, we must start to work for this goal."
Experts say using yuan to settle cross-border transactions will not only reduce businesses' exchange rate risks, but will also create new services for banks. Bank of Communication is expected to be among the first group to carry out the new service.
Dr. Lian Ping, Chief Economist of Bank of Communications, said, "Allowing the use of Renminbi for settlement in international trade will bring various new businesses for banks, such as exchange services, commission charges for account-opening, consulting fees, as well as trade financing. Banks will receive benefits in many aspects."
Other experts at the forum say using the yuan to settle international transactions will help reduce China's reliance on the US dollar. When Renminbi becomes a more international currency, it will help to build China's influence in world financial markets.
(CCTV April 13, 2009)
