The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Yuan seen taking fourth spot in global use by 2020
Trade settlements in the mainland currency would increase to US$3 trillion, economist says
The yuan is expected to become the fourth most used currency in global trade by 2020, surpassing five currencies, including the Japanese yen, and underscoring China's rise as the world's second-largest economy and its determination to make its currency fully convertible.
The share of yuan invoicing would quadruple to US$3 trillion in seven years, Standard Chartered senior economist Kevin Lau told reporters yesterday.
About 28 per cent of the mainland's total trade would be settled in yuan by then, double the current level, Lau said.
"The surging yuan trade settlement will act as a huge driver in the development of the offshore yuan market and its global journey," he said.
Lau said he expected Hong Kong's yuan deposits would reach 750 billion yuan (HK$950 billion) by December, with Taiwan's reaching 150 billion yuan.
He said the yuan was likely to stay at its current level relative to the US dollar this year, as regulators would not allow more appreciation amid concerns over a slowdown in exports, but appreciation of up to 2.5 per cent was possible next year as the mainland economy stabilised.
The yuan surpassed the Swedish krona and New Zealand dollar to become the ninth most popular currency in global trade this month, a Bank for International Settlements report said.
The US dollar, euro, yen, British pound, Australian dollar, Swiss franc, Canadian dollar and Mexican peso rank higher than the yuan.
Once the yuan became fully convertible, the Hong Kong government should study the role of the Hong Kong dollar, Peter Wong Tung-shun, HSBC Asia-Pacific chief executive, told the Boao Youth Forum in Hong Kong yesterday, RTHK reported.
The government could study the possibility of pegging to the yuan or a basket of currencies, Wong said.
The mainland has fully liberalised trade settlement, including goods and services, under the current account. The next challenge for regulators is to liberalise the capital account, allowing cross-border investment in bonds and equity markets and the trading of the yuan in foreign exchange markets.
Lau said he expected mainland regulators would "basically open" its capital account by 2020, but maintain some prudential controls. "The majority of restrictions would be removed, yet some key controls will remain," he said. "For example, the authorities will intervene if there are large cross-border loans, or large direct investment in and out of the country or when the financial market is very volatile."
China yesterday signed a three-year swap line of 10 billion yuan with Hungary, the People's Bank of China said on its website.
Meanwhile, HSBC has raised the interest rate for yuan deposits to 2.7 per cent from 2.25 per cent for a tenor of six months. The rate for a 12-month deposit is 2.9 per cent. Both rates apply to new deposits of at least 500,000 yuan.
For amounts of 20,000 to below 500,000 yuan, six-month deposits will enjoy an interest rate of 2.65 per cent, while 12-month deposits will earn 2.85 per cent.