(Yicai Global) April 12 -- The international use of China's yuan will inevitably rise as time goes by and its marketization progresses, given China's important role in the global economy, said Zhang Tao, deputy managing director of the International Monetary Fund.
China's economic rebalancing will also boost the yuan's internationalization, Zhang added in the interview with state Xinhua News Agency at the spring meetings of the IMF and the World Bank Group in Washington, DC.
The inclusion of the Chinese yuan into the special drawing rights basket is an important milestone for the IMF and the global economy, and also a great stride toward internationalization and the integration of the Chinese economy into the global financial system, Zhang said, Xinhua reported yesterday. SDRs are supplementary foreign-exchange reserve assets the IMF fixes and maintains, and a form of international money defined as the weighted average of several convertible currencies.
Yuan internationalization may be affected short term by trade, capital flows and exchange rate fluctuations, Zhang also stated.
That China is sticking to a policy framework that promotes its economic growth to a consumption and service-driven model from export-led investment-dependence, he believes is more important, as this results in more sustainable economic rebalancing. The country has achieved economic rebalancing, and the internationalization of yuan will thus follow as a matter of course.
Global central banks invested USD203 billion in yuan as part of their foreign exchange reserves as of the fourth quarter, making up 1.9 percent of the total reserve assets of the IMF's members, which is the highest level since the international financial watchdog reported yuan reserve assets in October 2016 and indicates that the redback's role as a reserve currency is gaining ever more international recognition, according to data the fund recently released.
China has announced a series of opening-up measures in the financial sector spanning foreign banks, insurance, securities, trusts and other fields, which sends a strong signal of the acceleration of financial opening up, Zhang believes, also that China's financial opening up not only promotes the greater modernism and efficiency of its financial market, but also helps to better use its plentiful domestic savings.
It also provides foreign investors with the opportunity to partake of the dividends of the Chinese economy's strong growth and to invest in such a large and structured economy.
As the IMF's newly-released book The Future of China's Bond Market notes, the Chinese bond market's prospects are bright, Zhang said when addressing Chinese bonds inclusion in the Bloomberg Barclays Global Aggregate Index as of this month.
China's financial system is still quite bank-led and relatively closed, he said, adding further development of the bond market needs intensified reforms, including reducing market segmentation, enhancing transparency, and further opening up the domestic market to foreign credit rating agencies.
Editor: Ben Armour