Jul 17, 2019 09:01 PM

China Sees More Opportunities to Spread Yuan Around the World

Pan Gongsheng is a deputy governor of China's central bank. Photo: VCG
Pan Gongsheng is a deputy governor of China's central bank. Photo: VCG

Trade tensions, rising populism and the increasing use of local currencies in cross-border trade are opening new opportunities for the yuan to be used around the world, said Pan Gongsheng, a deputy governor of the People’s Bank of China (PBOC), although he cautioned that internationalization of the yuan will be a long-term process that should be driven by the market.

In an article marking the 10th anniversary of the start of China’s efforts to turn the yuan, also known as the renminbi, into an internationally used and accepted currency, Pan expanded on how the central bank aims to encourage further internationalization, describing the strategy as an integral part of the country’s reform and opening up policy and an “important reflection” of China’s growing strength. He also warned that the policy would also face new challenges and require the implementation of further financial reforms.

“At present, the international economic and financial structure has undergone major changes, global trade friction is happening frequently, populism has risen, and some countries and regions have begun to focus on the use of their local currencies for cross-border settlement,” Pan said in the commentary in China Finance, a publication of the central bank.

Pan said this would be a long-term process that cannot be achieved overnight and that China would take a “low-key and pragmatic” approach. “It is necessary to actively and steadily promote renminbi internationalization and enhance the confidence of overseas entities in holding and using the currency,” while also preventing risks and ensuring stability.

Pan highlighted five key areas the central bank will focus on to promote yuan internationalization. First, allow the process to be market driven by encouraging the yuan’s use in cross-border trade settlement and improving the currency’s liquidity.

Interest-rate reform

Second, promote the use of the yuan under the capital account. That would include expanding the use of the yuan in cross-border investment, financial markets, further opening domestic financial markets to foreign investors, and encouraging central banks around the world to add yuan-denominated assets to their official reserves.

Third, push ahead with financial reform, which would involve continuing to overhaul the interest-rate and exchange-rate systems and to promote capital account convertibility, as well as bringing China’s tax, accounting and rating systems in line with international standards.

Fourth, support the healthy development of the offshore yuan market by providing liquidity support, increasing the availability of yuan funding offshore, and deepening integration between the onshore and offshore currency markets. Fifth, improve macro-prudential management, which would involve strengthening the monitoring and analysis of cross-border capital flows and preventing risks stemming from them.

Pan said the central bank is working on reforms to unify regulations on different cross-border investment channels and make it easier for overseas investors to allocate funds to the multiple channels available to them on the mainland such as the bond and stock connect programs with Hong Kong and London.

Foreign investors are increasingly active in China’s financial markets as the government has eased controls on capital inflows and allowed overseas institutions greater access. At the end of March 2019, overseas entities held 5.4 trillion yuan of yuan-denominated financial assets, including stocks and bonds, a 19% year-on-year increase, according to a central bank report issued in May.

Central banks around the world have also been adding the yuan to their reserves after the currency was included in the Special Drawing Rights (SDR), an international reserve asset created by the International Monetary Fund whose value is based on a basket of major currencies including the U.S. dollar. The yuan was added to the basket in October 2016, marking a milestone in China’s campaign to promote the internationalization of its currency.

According to the latest IMF statement on holdings of foreign-currency assets by the world’s central banks, a register known as COFER, yuan assets amounted to $212.9 billion in the first quarter of 2019, accounting for 1.95% of total allocated reserves, up from $145.7 billion a year earlier and $90 billion in the fourth quarter of 2016, the first full quarter after the yuan was included in the SDR’s currency basket.

Contact reporter Guo Yingzhe (

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