THE internationalization of the yuan, or the renminbi, remains steady in the long run, despite a temporary setback last year due to a volatile exchange rate and capital outflow, said a report published on Saturday.
The RMB International Index came in at 2.26 in the last quarter of 2016, down 29.8 percent year on year, said the report from the International Monetary Institute of Renmin University of China.
The index was 2.65, 3.03 and 2.78 in the first three quarters of 2016.
“The retreat will not change the long-term upward trend,” Xiang Songzuo, deputy director of the institute, said at a press conference.
The RII, only 0.02 at the beginning of 2010, had been rising constantly until it hit a peak of 3.91 in the third quarter of 2015.
The report attributed the temporary setback mainly to the yuan’s weakening role in cross-border settlement amid flagging global trade and investment.
The yuan fell to sixth place among the most-used world payment currencies at the end of 2016 with a market share of 1.67 percent, down from 2.31 percent at the end of 2015, according to the Belgium-based Society for Worldwide Interbank Financial Telecommunication.
Xiang said his long-term bullish stance on the yuan’s internationalization was based on China’s financial reforms and opening up, a solid national economy, and outward-looking strategies including the Belt and Road Initiative.
“The financial markets, which have opened wider to the rest of the world, have become the core driving force of the yuan’s global journey,” Xiang said.
A bond connect between the Chinese mainland and Hong Kong started operation early this month, granting easier access to the world’s third largest bond market. Similar stock links that opened in 2014 and 2016 prompted the MSCI’s planned inclusion of 222 Chinese large cap stocks into its emerging markets index in June.
The International Monetary Fund in October officially added the yuan to its Special Drawing Rights, a recognition of the currency’s global position.
To further step up the yuan’s global drive, Xiang advised measures including continued financial opening up, support for outbound direct investment and improved financial infrastructure.
“There will be risks accompanying the internationalization process, so that is why I propose setting up more diverse derivatives and tools to mitigate the risks,” he said.
Yaseen Anwar, former governor of Pakistan State Bank, highlighted the need for the yuan to join the world’s dominant currencies.
“Many banks in the world were affected in the last financial crisis because of one currency, so there needs to be a multi-polar multi-currency world to allow the volatility to be managed by central banks around the world,” he said.
“RMB, which has the backing of the world’s second largest economy, will become a dominant currency, but it takes time, because its usability and concept have not been accepted by many people,” he said.
With the currency-swap agreement, the Belt and Road Initiative, and infrastructure financing in the next 20 or 30 years, the yuan will become more freely usable and more acceptable to people, particularly in emerging markets, he added.