BNP Paribas Global Markets Conference 2018
China’s drive to internationalize the yuan will be driven by two factors – the flow of funds into the country and the weakening of rules restricting the movement of Chinese currency abroad, said Ci Ji Lai, executive director of BNP Paribas China..
The yuan differs from other major currencies such as the US dollar or the Japanese yen, which have a floating exchange rate and are determined by market movements through supply and demand..
China maintains strict control over the onshore yuan trading rate on the mainland. The offshore yuan, which is traded outside the mainland, mainly in Hong Kong and Singapore, is influenced by supply and demand, but this volume is relatively small..
The yuan is not expected to overtake the dollar anytime soon, but its importance in world reserves and international trade is growing thanks to Beijing’s growing economic power. The Yuan is considered the sixth largest currency for international settlements and is used to settle about 20% of China’s trade..
RMB globalization «will be driven by two factors: the first is the flow of funds into this country, and after that the Chinese government and the People’s Bank of China need to relax to allow the yuan to come out». About it C Ji Lai said on Tuesday. His remarks came from discussions at CNBC’s annual East Tech West conference, which is being held both remotely and locally this year in the Nansha District of Guangzhou, China..
China previously eased trade restrictions around the yuan between 2010 and 2015, Lai said. He explained that with the flows of funds now flowing to China, the country’s central bank «gain the flexibility to allow the yuan to travel outside the country».
«Because if you really want to campaign for the internationalization of the RMB, one of the most important factors is the liquidity that will exist in these places.», – Lai told CNBC Evelyn Cheng.
China devalued its currency in 2015 to help exporters who were battling a weakening economy and stock market storms. The cheap currency makes the country’s exports more affordable and competitive. Subsequently, Beijing took tough measures to stop capital outflows from China..
With the coronavirus pandemic in China largely under control since March, political leaders said in July that the central bank was not planning more stimulus as the economy struggles to get back on its feet..
While other major central banks, including the US Federal Reserve (FRS), have cut interest rates to near zero, the People’s Bank of China has been relatively restrained. Thus, the potential for relatively higher yields has led to an increase in foreign capital inflows into Chinese investment assets..
According to Lai, China’s ability to control the pandemic was «very important», because it allowed the central bank to maintain a relatively higher interest rate.
«Recovery led China’s monetary policy towards a much more normal stages compared to other countries, which means that the country can now look at the internationalization of the RMB», – he said. Lai added that as long as funds continue to flow to China, Beijing will have a better chance of increasing its use of the renminbi abroad..
Other investors said the yuan is currently attractive and is expected to strengthen on capital inflows, economic growth and balance of payments..