Senior official: Renminbi likely to be used as currency for forex reserves

Special Report:Global Financial Crisis

BEIJING, Dec. 25 (Chinese media) -- China's currency, Renminbi, is likely to join

other international currencies to be used for forex reserves by other economies,

according to Wu Xiaoling, former vice governor of the country's central bank and

now the deputy head of the financial and economic committee under the top

legislature.

Wu made the remarks in her article carried by the latest annual issue of

the leading business magazine Caijing.

Wu wrote that China should make preparations in its economic structure and

its financial regime for its currency to be internationalized.

Prior to making the Renminbi, also called yuan, a currency used for forex

reserves by other economies, it may be allowed to be used for trade settlements

between China and some other countries and regions, according to Wu.

In China's neighboring countries, there were calls for the yuan to be used

to settle bilateral trade payments, she said. China has signed settlement

agreements with eight neighboring countries, including Russia, Mongolia, Vietnam

and Myanmar, assuming a voluntarily choice of settlement currency, she added.

Many were confident of the yuan and willing to settle trade payments in the

Chinese currency, as it remained strong, Wu said.

"China should create conditions for the yuan to become an international

settlement currency," she stressed.

It is necessary to expand and deepen the yuan-denominated financial markets

and step up the process to realize the full convertibility of the currency and

provide investment channels for yuan holders, according to Wu.

Some believed the reason why China was able to remain untouched in the 1998

Asian financial woes was because of its lack of full convertibility under

capital accounts. And this was also the factor behind the fact that China has

not been so seriously affected by the current global financial crisis.

Wu said China should not become "self-complacent and close itself from the

outside world" because of its lack of full convertibility, which was "not a good

thing". Otherwise, the country would be "at a disadvantage when the world

economy stabilized and made a takeoff again," she added.

The Chinese Government has decided to allow the yuan to be used for

settlement between Guangdong Province and the Yangtze River Delta and the

special administrative regions of Hong Kong and Macao.

Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be

allowed to use Renminbi to settle trade payments with ASEAN (Association of

Southeast Asian Nations) members, according to a government announcement on

Wednesday evening.

But the Government did not give any details of how and when the pilot

currency program would start.

"The move will mitigate the risk of exchange rate fluctuations for Chinese

exporters and their trade partners," Zhao Xijun, finance processor at Renmin

University of China, was quoted as saying by Thursday's China Daily.

Most of China's external trade is settled in U.S. dollar or the euro at

present. But, the paper said, many analysts predicted the dollar might

depreciate substantially in the coming years because of the ailing U.S. economy.

"The move will also increase the yuan's acceptance in Asia, which will help

it become an international currency in the long run," Zhao told the paper.

The yuan's acceptance has been rising in recent years, thanks to the

nation's economic prowess and its 1.9 trillion reserves of foreign exchange,

according to the paper.