2 things must happen for the yuan to go global - BNP Paribas

CNBC reports that the chief executive of BNP Paribas China said that China’s push to internationalize the yuan will be driven by two things — funds flowing into the country and a relaxation of rules that restrict the Chinese currency from moving abroad.

China maintains strict control of the onshore yuan’s trading rate on the mainland. The offshore yuan —which trades outside the mainland, mostly in Hong Kong and Singapore — is influenced by demand and supply, but that volume is comparatively small.

The yuan isn’t expected to unseat the dollar anytime soon, but its prominence is rising in global reserves and international trade owing to Beijing’s growing economic influence. The yuan is said to be the sixth most used currency in international payments and is used to settle about 20% of China’s trade.

Globalization of the yuan “will be driven by two things: One is the incoming funds into this country, and then the Chinese government and also the [People’s Bank of China] need to relax to allow the renminbi to go outside,” CG Lai said.

China had previously eased trading restrictions around the yuan between 2010 and 2015, according to Lai. He explained that with funds now flowing into China, the country’s central bank “will have the flexibility to allow the renminbi to go outside.”