By Wang Xinchuan

Renminbi's taking a position in the international currency system can reduce the negative influence of the existing international currency system and create a new channel of capital use for China --

On the Fifth Session of the Eleventh National People's Congress concluded recently, Premier Wen Jiabao pointed out in the Government Work Report that the government would deepen market-oriented reform of interest rates, work steadily to make the RMB convertible under capital accounts, and expand the use of RMB in cross-border trade and investment. People outside the government believe that this is a clear signal indicating that the internationalization process of RMB will be accelerated. Before the Annual Sessions of NPC and CPPCC, the People's Bank of China signed a bilateral currency swap agreement with the Central Bank of Turkey. The volume of the swap is RMB 10 billion Yuan, or 3 billion Turkish liras, with a term of validity of 3 years that can be extended by mutual consent. This is the 16th currency swap agreement the People's Bank of China has signed since the outburst of the international financial crisis.

As more RMB is circulating overseas, the internationalization of RMB is also attracting more attention. Experts believe that the internationalization of RMB depends on the degree at which it is accepted by the market, and that we should actively adapt to the development of the situation and the demands of the market, further consolidate the foundation of the market, and push forwards the internationalization of RMB gradually in due order.

Promising future growth of China's economy underpinning other governments' and international investors' confidence in RMB

In recent years, as China's economy has been developing rapidly and the level of its openness to the outside world keeps increasing, RMB has become more and more extensively used overseas and its internationalization process has been accelerating. "The outburst of the international financial crisis and the spreading of the European debt crisis expose the inherent flaws and systemic risks of the existing international currency system. It presents an opportunity for RMB to go global", said Li Dongrong, assistance to the chairman of China's central bank.

The economic growth of China, the second largest economy and the biggest debtor in the world, is still promising in economic growth for the next 20 years to come. This will underpin other governments' and international investors' confidence in RMB and provides powerful momentum for the internationalization of RMB.

Cross-border RMB transactions effectively satisfying demands of real economy, providing convenience to enterprises, financial institutions, and individuals

According to people from the central bank of China, the early stage of the internationalization of RMB is mainly embodied in the cross-border circulation of RMB. In 2002, on an ATM in Canada's Vancouver airport, RMB could be used to exchange for US dollar and Canadian dollar. In 2005, the Central Bank of Philippine announced that RMB had become a freely convertible currency in Philippine. In recent years, people can find places to exchange RMB on the streets of Singapore, Vietnam, Mongolia, and French. RMB is becoming more and more popular with overseas consumers.   

In June, 2007, the first RMB bond was issued in Hong Kong. After that, several commercial banks from mainland China issued a total of more than RMB 20 billion Yuan of RMB bonds in Hong Kong. With the rapid development of the offshore market of RMB, there are more varieties and larger volume of cross-border transactions of RMB. 

According to statistics published by the central bank earlier, in 2011, RMB settlement of cross-border trade amounted to RMB 2.08 trillion Yuan, and RMB settlement accounted for more than 7 percent of China's commodities import and export. RMB is basically established as a trade settlement currency. "As expectation for RMB appreciation weakens, RMB settlement continued to grow steadily last year, indicating the existence of real demands for RMB settlement", said Ding Zhijie, who points out that cross-border RMB transactions have effectively satisfied the reasonable demands of the real economy and benefited relevant enterprises and financial institutions. 

As channels for the cross-border circulation of RMB continue to expand, offshore RMB business in Hong Kong also grows markedly. According to statistics published by Hong Kong Monetary Authority recently, in 2011, the amount of RMB settlement of cross-border trade processed by banks in Hong Kong approached RMB 1.92 trillion Yuan, 4.19 times that of 2010; the issuance of RMB bonds amounted to RMB 107.9 billion Yuan, double that of 2010; balance of RMB loans reached RMB 30.8 billion Yuan, more than 16 times that of 2010; RMB has become the third largest currency in Hong Kong after Hong Kong dollar and US dollar. 

Besides, currency cooperation between central banks continues to broaden. So far, the People's Bank of China has signed bilateral currency swap agreements with the central banks or monetary authorities of 16 countries and regions, including South Korea, Malaysia, Belarus, Argentina, and Turkey. Nowadays, most tourist-related industries, departments, and retailers in Vietnam, Russia, and Burma, among others, accept RMB; in addition, China UnionPay cards can be used to make purchases in such countries as South Korea, Thailand, and Singapore. The scope of the circulation and use of RMB is becoming wider and wider. 

Thorough financial market reform required for RMB to become an international hard currency

"The internationalization of RMB is budding, but it only means that it has the potential and that more effort is needed. It doesn't mean that RMB is already an internationalized currency", said Jia Kang, director of the Institute of Finance Science of the Ministry of Finance, who points out that the target of the internationalization of RMB is still significantly far away from the real economic life.

Some experts believe that in recent years, the continuous and rapid growth of China's economy and the apparent improvement of China's economic strength and macro-control capacity have increased the level of capital accounts convertibility that China is capable of bearing and provided favorable opportunities for the implementation of relevant reforms.

"The internationalization of RMB is a gradual process", says Jia Kang, who suggests that we still need to promote thorough reform of the financial market, improve the mechanism for setting the RMB exchange rate, and deepen the market-oriented reform of interest rates; after achieving convertibility under capital accounts step by step and with the continuous elevation of China's comprehensive national strength, RMB will eventually become a member of the world's "hard currency club" and be accepted with delight by others. At that time, the internationalization of RMB will be achieved.