Renminbi may become global reserve currency

By Cecily Liu in Luxembourg (China Daily) Updated: 2014-02-28 08:22

A clerk counts currency at a bank in Ganyu county, Jiangsu province, earlier this month. Si Wei / for China Daily

The renminbi could rival the US dollar as a leading international reserve currency despite obvious challenges, said Yves Mersch, a member of the European Central Bank's executive board.

Delivering a keynote speech on Wednesday at The Luxembourg Renminbi Forum, Mersche said that the currency's internationalization is just beginning, but it's moving fast.

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"Clearly, having become an important trading and payment currency, the renminbi is now taking the first steps toward establishing itself as an international investment currency. If it can do so successfully, it might one day become a leading reserve currency," he said.

China's push to internationalize its currency started in 2008, when the global financial crisis demonstrated the danger of excessive reliance on the US dollar.

China soon began to encourage the use of its currency in international trade, swap arrangements among central banks, and bank deposits and bond issues in Hong Kong.

European businesses increasingly started to invoice Chinese suppliers using the yuan, creating a growing offshore pool of the currency in Europe. With the expansion of Chinese banks in Europe, yuan-denominated trade finance and investment products are also increasingly available.

"Trade in offshore renminbi has boomed. Increasing Chinese exports also led to a surge in demand for renminbi outside China as Chinese exporters increasingly expect to be paid in their own currency to eliminate exchange risks," Mersch said.

But he added that the growth of offshore yuan activity faces challenges, one of which is the fragmentation between the onshore and offshore markets.

The onshore currency isn't freely convertible, unlike the offshore pool of renminbi. Exchange rates are also different.