Could The Chinese Yuan Dethrone The U.S. Dollar as The Global Currency?

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Written By Keziah Monique Gayo

For China’s yuan to be used more globally, the currency needs more “applications” such as for stocks and bonds, according to Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited.

Speaking during the World Economic Forum’s “Summer Davos” meeting in Dalian, China, Chan emphasized that for the yuan, also known as the “renminbi” or “RMB,” to become more widely adopted internationally, it needs to be utilized beyond just trade purposes.

She noted, “We’re not just going to hold on to a bunch of RMB and put it into this bank account. You want to have bonds, you want to have equities, etc.”

Strategic Initiatives to Boost RMB Usage

Chinese currency — Stock Photo, Image
Credits: DepositPhotos

Chan highlighted that one of HKEX’s strategic imperatives is to ensure the production of more RMB-denominated security products. This initiative aims to allow investors globally to see more applications of the RMB and use these as a medium to store wealth in the form of the RMB.

Last year, HKEX announced a “Dual-Counter” program that allows investors to trade Hong Kong-listed securities in Hong Kong dollars or Chinese yuan, a significant move towards increasing the currency’s international presence.

Yuan’s Growing Role in Global Finance

In 2015, the International Monetary Fund (IMF) took a notable step towards the internationalization of the yuan by including it in its basket of reserve currencies. As of May, the yuan was the fourth-most active currency for global payments by value, accounting for nearly 4.5% of transactions, according to SWIFT.

In trade finance, the yuan ranked third with about 5.1%, trailing behind the U.S. dollar and the euro.

Despite these advances, Fred Hu, founder, chairman, and CEO of Primavera Capital, believes that the internationalization of the yuan will take longer than many expect.

He noted that although China is the largest trading nation and has substantial financial centers, it is not as large or as deep as the U.S. financial market. Hu pointed out, “Besides our capital account is also closed, it’s not fully convertible, [which] also in some way [is] hampering the internationalization of the renminbi.”

Developing a Mature Financial Market

Chan also discussed the need for a more sophisticated investor base in China to support the development of yuan-denominated investment products. She mentioned that during the annual Lujiazui Financial Forum in Shanghai, top leaders frequently used the term “patient investing” to promote long-term investments over short-term speculation.

Kenny Lam, CEO of Two Sigma Asia-Pacific, added that policymakers are increasingly focusing on making their policies more stable and consistent.

Revitalizing Chinese IPOs

Credits: DepositPhotos

The regulatory scrutiny from both Beijing and Washington, D.C., has significantly slowed the number of Chinese companies seeking to list in the U.S. financial markets over the past three years. However, there is optimism that the IPO market will rebound.

Jonathan Krane, founder and CEO of KraneShares, remarked, “I think IPOs are essential for attracting investors to come back in the market. All of the storytelling around it, it shows that there’s a lot of progress happening.”

Chinese authorities recently announced new efforts to support initial public offerings, particularly in Hong Kong. Chan reported that so far this year, the Hong Kong exchange has received 73 new listing applications—a 50% increase compared to the second half of last year.

She noted, “The pipeline is building up nicely,” and mentioned that about 110 IPOs are in line, adding, “All we need is a set of good market conditions so these things get to launch and price nicely.”

These developments highlight China’s ongoing efforts to boost the global use of the yuan and strengthen its financial markets, despite existing challenges and skepticism about the speed of these changes.




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