Internationalization of yuan

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a bank in Beijing, March 30, 2016. [Photo/Agencies]

The yuan's continuous appreciation against the US dollar in recent months has brought holders of yuan-denominated assets impressive investment returns. This, along with the internationalization process of the yuan that started after 2005 and the "throes" it suffered after the monetary authorities launched their exchange rate reform two years ago, has seen the Chinese currency's gradual transformation into a strong global currency.

The sheer size of China's economy and its annual growth rate, which remains higher than the world's average, as well as its status as the holder of the world's largest foreign exchange reserves, have laid a strong foundation for the yuan to become an international currency. And China's ongoing efforts to promote comprehensive reforms and advance the modernization of its governance have served to raise the Chinese currency's global status. At the same time, the inclusion of the yuan in the Special Drawing Rights basket of the International Monetary Fund has offered institutional guarantees for its being an international currency.

Before the most recent round of exchange rate reforms, the US dollar was the only reference currency to decide the yuan's exchange rate. But since those reforms, the yuan has been pegged to a basket of currencies such as the euro, the Japanese yen, the Australian dollar, the British pound and Swiss franc, thus avoiding one-way appreciations or deprecations based on the value of the US dollar alone. This can be testified by the yuan's basically stable exchange rate over other currencies in recent months despite its rise by 6 percentage points against the US dollar.

A series of measures aimed at promoting financial deleveraging and squeezing asset bubbles have further enhanced the yuan's risks-evading function. However, the yuan's internationalization remains a long process, and any such measures should also bear in mind the need to minimize risks at home.

--BEIJING YOUTH DAILY