ECB sees yuan challenging greenback

The yuan might one day challenge the role of the US dollar as the world's leading reserve currency, European Central Bank executive board member Yves Mersch said.

"Having become an important trading and payment currency, the renminbi is now taking the first steps toward establishing itself as an international investment currency," Mersch said at Luxembourg's Renminbi Forum on Wednesday.

"Due to the size of China's economy and its importance in global trade and, potentially, finance, the renminbi might ultimately come to challenge the US dollar" as a leading reserve currency.

The central government has been gradually allowing the currency to float more freely in recent years, while keeping strict limits on the amount of money that can flow from the mainland. The yuan became one of the top 10 currencies used for payments last year as its use in settling trade has increased.

Introducing direct trading between the euro and the yuan at the Shanghai foreign exchange will "bring benefits for the euro area and China", Mersch said.

The ECB and the People's Bank of China established a currency swap agreement in October under which up to €45 billion (HK$480 billion) can be made available as a backstop against possible liquidity shortfalls.