Economic review

Yuan internationalization set to speed up in 2018

2018-01-08 09:21:00 (Beijing Time)         Global Times

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B&R investment expansion will offer boost: experts

The internationalization of the yuan will accelerate again in 2018 as trade and investment grow rapidly under the Belt and Road (B&R) initiative and the currency's exchange rate is set to hold steady, experts said.

The comments came after the People's Bank of China (PBOC), the central bank, released a statement on its website on Friday, saying that income from investment, including profits and dividends, of foreign-funded companies could be transferred abroad freely via a cross-border yuan settlement scheme.

The PBOC also said that Chinese firms would be allowed to transfer funds raised from overseas bond and stock issuance back home based on their actual needs.

It said that banks would be allowed to provide cross-border yuan settlement services for individuals to meet the needs of employees' salary and welfare settled in the currency, realizing the full coverage of the services under the current account.

The use of yuan for cross-border trade and investment will help create a sound business environment and support the country's B&R initiative, said the statement.

Tu Yonghong, director of the International Monetary Institute at Renmin University of China, said that prior to the statement there had not been such specific details governing individual cross-border transfers and settlement, but with more and more people participating in the construction of the B&R initiative as investment and services trade keep growing, it is a natural and encouraging move.

For instance, under the new rules, Chinese employees working overseas can receive their salary in yuan, "which will help Chinese firms to control the risk from exchange rate fluctuations," Tu noted.

Cao Yuanzheng, chairman of BOCI Research, agreed, saying that the B&R initiative is a powerful force for pushing the yuan to the global stage since it boosts the use of the currency.

"The central bank's statement offers encouragement for trade and investment using yuan under the capital account for the B&R construction," Cao told the Global Times, adding that the offshore yuan market, which has been shrinking since 2015, will also benefit.

The internationalization of the yuan had slowed down amid depreciation pressure since August 2015, when the PBOC reformed the yuan's midpoint rate determination mechanism, but momentum in China's long-term efforts to make the yuan a global currency picked up again in 2017.

According to the Society for Worldwide Interbank Financial Telecommunication yuan tracker, the yuan's share as an international payment currency fell from 2.31 percent in 2015 to 1.68 percent in late 2016, but it bounced back in 2017.