Economy

Int'l monetary system needs yuan as 'third leg'

(Xinhua)
Updated: 2010-07-05 09:39

CONDITIONS

According to Yam, the internationalization of the renminbi and becoming a third leg of the world's monetary system would take many years, and wouldn't be achieved without meeting five conditions.

The first requirement is the economic size. China's economic size, if measured by the gross domestic product (GDP), should be similar to that of the US and the euro zone, which commands international confidence for the renminbi.

Currently, China's GDP is about one third of that of the US and the euro zone. In 2009, China's GDP amounted to $5 trillion, while GDP of the euro zone was equivalent to some $16 trillion and US GDP stood at $14.2 trillion, according to IMF figures.

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Second, China needs to continue implementing effective macroeconomic policies in the next several decades and keeping steady growth. Yam said that China has been implementing effective macroeconomic policies over the past more than 20 years which promotes and strengthens international confidence in its currency.

Third, the renminbi should be fully convertible and China needs eventually to remove all capital controls. "The full liberalization of the capital account has wider ramifications than the internationalization of the renminbi and will therefore have to be handled carefully, emphasizing on gradualism, controllability and the ability to take the initiative," Yam had said.

Fourth, China needs to set up an extensive and mature renminbi- denominated investment market, which would allow foreign individuals and institutions to use the renminbi in financial transactions freely, he said.

The fifth and last condition is to build modern financial infrastructure to support a real-time gross renminbi settlement system, Yam added.