China’s renminbi (RMB) is on track to become the third-largest international currency behind the US dollar and the euro within five years as the eastern nation accelerates promotion of its unit, says a study.
Last year, RMB cross-border trade settlement amounted to 4.63 trillion yuan ($746 billion), up 57.5% from 2012.
It accounted for 2.5% of cross-border trade settlement worldwide, a study by China’s Renmin University said.
Yuan is the name of a unit of the China’s currency renminbi.
By the end of the fourth quarter of 2013, direct investment settled in renminbi amounted to 533 billion yuan, (about $88 billion) 1.9 times that during the same period of 2012, it said.
The RMB is currently the fifth-most widely used currency internationally.
The British pound is third and the Japanese yen fourth, it said.
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, state run China Daily quoted the report to say.
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 centre’s are competing for the market.
Wei Jianguo, vice-chairman of the China Center for International Economic Exchanges, suggested the government establish additional centres in places such as Dubai, South Africa and Latin America.
In spite of the rapid expansion of the RMB, it still faces many challenges including technical difficulties using the currency globally.
“To resolve the problem, China has to build a safe, efficient and low-cost offshore RMB clearing system as soon as possible,” Chen said.
“In addition, the regulators must create a legal framework for the offshore RMB market and make sound regulations to stop money laundering and tax evasion via offshore yuan transactions.
By the end of 2013, the outstanding volume of international bonds and bank notes denominated in renminbi rose 24.9% year-on-year to $71.9 billion.
The issuers of RMB-denominated bonds started to expand out of Hong Kong, with countries such as Japan and Canada joining in, it said.