The yuan has the potential to become a major international currency once it becomes fully convertible, according to Hang Seng Bank's latest economic monthly report.
The report, released yesterday, said the status of the yuan would rise along with mainland economic growth. The mainland ranked as the world's ninth largest trading entity last year and might rise to third by 2010, next only to the US and Germany.
'Given the massive size of the rapidly growing Chinese economy and its further opening-up to the world, the [yuan's] potential as a major international currency should not be underestimated,' the report said.
The report came hours after Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong revealed Premier Zhu Rongji had requested the authority examine the influence on the SAR of any adjustment in yuan exchange-rate policy.
Beijing is rumoured to be considering broadening the yuan's trading band - in effect a de facto devaluation of the currency - as soon as the fourth quarter of this year. The yuan has been held firmly at about 8.28 to the US dollar for the past three years.
To loosen controls the central bank would allow greater movement in the yuan exchange rate before it intervenes.
