China's currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country's central bank and now the deputy head of the financial and economic committee under the top legislature.
Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.
Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized.
Prior to making the Renminbi, also called yuan, a currency used for forex reserves by other economies, it may be allowed to be used for trade settlements between China and some other countries and regions, according to Wu.
In China's neighboring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.
Many were confident of the yuan and willing to settle trade payments in the Chinese currency, as it remained strong, Wu said.
"China should create conditions for the yuan to become an international settlement currency," she stressed.
It is necessary to expand and deepen the yuan-denominated financial markets and step up the process to realize the full convertibility of the currency and provide investment channels for yuan holders, according to Wu.
Some believed the reason why China was able to remain untouched in the 1998 Asian financial woes was because of its lack of full convertibility under capital accounts. And this was also the factor behind the fact that China has not been so seriously affected by the current global financial crisis.
Wu said China should not become "self-complacent and close itself from the outside world" because of its lack of full convertibility, which was "not a good thing". Otherwise, the country would be "at a disadvantage when the world economy stabilized and made a takeoff again,"she added.
The Chinese Government has decided to allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao.
Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be allowed to use Renminbi to settle trade payments with ASEAN (Association of Southeast Asian Nations) members, according to a government announcement on Wednesday evening.
But the Government did not give any details of how and when the pilot currency program would start.
"The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners," Zhao Xijun, finance processor at Renmin University of China, was quoted as saying by Thursday's China Daily.
Most of China's external trade is settled in U.S. dollar or the euro at present. But, the paper said, many analysts predicted the dollar might depreciate substantially in the coming years because of the ailing U.S. economy.
"The move will also increase the yuan's acceptance in Asia, which will help it become an international currency in the long run," Zhao told the paper.
The yuan's acceptance has been rising in recent years, thanks to the nation's economic prowess and its 1.9 trillion reserves of foreign exchange, according to the paper.
(Xinhua News Agency December 25, 2008)
