The yuan will achieve full convertibility earlier than expected as Beijing pushes forward reforms, but its global path will not be an easy one as slower economic growth and debt problems pose policy challenges, HSBC said.
Stuart Gulliver, the chief executive of Europe's biggest bank, said he expected the mainland currency to become fully convertible by 2017, one year earlier than his original forecast, thanks to the accelerating pace of Beijing's efforts to push forward its financial reforms. "The reform process will not slow down. If anything, it will increase in speed, albeit in a controlled manner," Gulliver said yesterday in a forum on the yuan held by HSBC.
The reform process will not slow down. If anything, it will increase in speed
Despite the overall sanguine picture, he admitted there could be "difficult choices" for mainland policymakers.
Beijing is under pressure to navigate the nation's economy out of a hard landing scenario and some critics fret a faster rise of the yuan may work against the central bank's efforts to tighten liquidity and curb rising inflation.
"There will be difficult choices, not least around the shadow banking sector," Gulliver said. "Slowing growth, local government debt and the shadow banking sector all pose policy challenges."
A likely dilemma China is facing, some economists say, is that a freer financial market could pose greater difficulties in curbing shadow banking in the country - the failure to raise interest rates and fight inflation give shadow banking a chance to grow.