Renminbi To Become International Currency, Yam Predicts

by Mary Swire, for LawAndTax-News.com, Hong Kong

14 July 2006

Writing recently, Hong Kong's Monetary Authority Chief Executive Joseph Yam suggested that as the currency of one of the largest economies of the world, the renminbi will become an international currency, and argued that the declared policy of gradually introducing convertibility for capital account items of the balance of payments will help it to achieve this status.

In his Viewpoint column, published on Thursday, Mr Yam said the development of renminbi business in Hong Kong will help prepare it for the inevitable process of the renminbi becoming an international currency.

He said the use of renminbi by Mainland residents for consumer spending outside the Mainland, particularly in Hong Kong and Macau, and in foreign cities on the Mainland's border, is increasing.

"There is a possibility that in the fullness of time, when the Mainland develops into one of the major economic powerhouses of the world, the renminbi may even become a reserve currency, just like the US dollar, the euro and to a lesser extent the yen are now, and an anchor currency for the region," Mr Yam predicted, continuing:

"I believe that this process is an inevitable one. As an international financial centre, Hong Kong must develop its capability to handle financial transactions denominated in the renminbi, which will increase. This is why we have been pushing hard for the development of renminbi business in Hong Kong and the associated inclusion of the renminbi in our sophisticated, multi-currency financial infrastructure."

He went on to add that the desirability of Hong Kong serving as the testing ground for the renminbi to get onto the world stage has also become clearer, as has the need for Hong Kong to develop its financial infrastructure to cope with the increasing volume of international financial transactions denominated in the renminbi that will inevitably come.

The Monetary Authority chief called for caution over the implications of too rapid financial liberalisation for monetary and financial stability on the Mainland, particularly in the increasingly complex global financial environment, observing that:

"The priority is to get it right, which is important not just to China but also the rest of the world."

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