China should quicken the pace of allowing financial institutions to issue renminbi bonds in Hong Kong as part of its moves to internationalize the currency and reduce reliance on the US dollar, experts said.
The central bank governor, Zhou Xiaochuan, yesterday signed a supplementary agreement with the Hong Kong Monetary Authority (HKMA) to strengthen regulations between the mainland and Hong Kong for the use of yuan in international trade settlement.
This was one of the first steps to promote the yuan in international trade and finance, experts pointed out, urging more such measures.
"China should go further in this regard. This means not only using the yuan for trade settlement, but also as an investment tool," said Sun Lijian, a professor at Fudan University. "This requires that the government speed the pace of permitting Hong Kong to issue yuan-denominated bonds; this will boost the currency's position," said Sun.
China is promoting greater use of the yuan in international trade and finance after Premier Wen Jiabao in March expressed concern that a weakening dollar would lead to losses on the country's holdings of US assets.
The government said on April 8 that it would allow Shanghai and four cities in the southern Guangdong province, including Shenzhen and Guangzhou, to settle international trades in yuan. Companies currently have to convert yuan into dollar or other currencies to settle trades.
The central bank has agreed to provide 650 billion yuan ($95.15 billion) to Argentina, Belarus, Indonesia, Malaysia and South Korea and Hong Kong special administrative region through so-called currency-swaps to expand the usage of the yuan. China and Brazil in May began studying a proposal to move away from the dollar to settle trade and use yuan and reals instead.
"It's an important step to make the yuan an international currency," said Fang Ming, a Beijing-based analyst at Bank of China, the nation's biggest foreign currency trader, Bloomberg News reported.
"In the long term, the world reserve currency system will consist of several major currencies, including the yuan and the euro, instead of just the US dollar," he said.
Concerning the weakening dollar, the central bank in a report released on Friday renewed its call for a new global currency and said the International Monetary Fund (IMF) should manage more of members' foreign exchange reserves.
"To avoid the inherent deficiencies of using sovereign currencies for reserves, there's a need to create an international reserve currency that's de-linked from sovereign nations," the central bank said in its 2008 review. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.