ThroughouT its long history, money matters have always been a major concern for China. The nation that invented paper notes in the 10th century places great emphasis on all things financial.
　　“Money is of real concern to us Chinese,” said Wang Yajie, a 38-year-old financial adviser based in Beijing. “We, as a people, really care about where our currency is heading, and this is evident by seeing everyday people tune into the news to hear about China’s financial dealings. renminbi is more than a currency, it is a fabric of our society,” Wang told ChinAfrica.
　　China’s renminbi (rMB, also known as yuan), which means “the people’s currency,”was throughout most of its history pegged to the u.S. dollar. however, the currency has now undergone a transformation, with the rMB exchange rate being allowed to float in a narrow margin around a fixed base rate determined with reference to a collection of world currencies.
　　Along with the government announcing that it will gradually increase the flexibility of the exchange rate, and with several pilot projects being initiated with the aim of internationalizing the rMB, the world is now looking at the rMB as the new global reserve currency, but who will reap the rewards?
　　Next in line
　　Claims by experts that the rMB will pip the dollar to the number one slot of international currency ratings has not been made without serious judgment. Its internationalization began to take effect in the last few years, which has seen the hong Kong’s rMB bond market grow at a startling rate.
　　Even though China ranks second to the united States in terms of economy, China’s allowing of foreign banks to be able to hold yuan in 2010 has marked a new watershed for its currency.
　　According to figures cited by the Dow Jones agency, in 2010, 5.7 percent of foreign trade of China, or 506.3 billion yuan ($80.3 billion), was paid in rMB. The rise of the rMB in international trade is more important than the disruption of its gradual appreciation against the dollar, which is expected to continue at a slow rate of 3 percent to 5 percent per year.
　　“We predict that in three years, the rules of cross-border trade in yuan represent one third of total Chinese exports and imports, totaling between$1.5 trillion and $2 trillion a year. This development is a major turning point not only for China but also for the regional[Asia] and international market,” said economist Qu hongbin in a recent media interview.
　　The impact that the international trade of yuan will have on the world has become a hotly debated topic amongst economists, financiers and CEos alike.
　　Yum Sui Sang, CEo of union Commercial Bank of Cambodia, said at a press conference late last year that Western central banks use quantitative easing and government backup plans to deal with fundamental problems in their economies, but it is not sustainable. Those developed countries used to interfere with the development of developing countries. “I believe it is about time for China and ASEAN to unite to protect their own interests. The Chinese yuan is the best choice for an intermediate currency in trade. I hope China could facilitate a trade mechanism by providing yuan convertibility and develop its settlement mechanism which is easy and simple to implement,” he said.
　　Renminbi drawbacks
　　Baosteel, the state-owned Chinese steelmaker, has issued 3.6 billion yuan ($570 million) worth of renminbi denominated bonds in hong Kong in November last year. This move is seen as highly significant, as Baosteel will be the first Chinese company, other than a bank, to sell rMB bonds directly to international investors.
　　however, this still does not change the fact that the yuan cannot currently be used as a reserve currency due to two main factors. First, China maintains capital controls on the conversion of its currency. And second, China’s currency is seen as unattractive to central banks for holding.
　　Experts have stated that in order to overcome this, China needs to develop a strong open bond market. The country has heeded this criticism and has begun a drive to put the yuan on an international platform.
　　Global vision
　　The first international hub for trade in China’s yuan will now be expected to be based in London. The uK’s Chancellor of the Exchequer, george osbourne, heralded the announcement of this move in January in hong Kong.
　　“London is perfectly placed to act as a gateway for Asian banking and investment in Europe. The city is the largest center for foreign exchange and it is uniquely placed to assist in the development of this exciting market,” osborne told a press conference in hong Kong.
　　According to uK treasury officials, the new partnership with hong Kong puts London in pole position to be the major center for trading the Chinese currency outside the Chinese mainland and hong Kong. Following the relaxation of strict state controls, the yuan is set to become a major, globally traded currency, in keeping with China’s status as the world’s second-biggest economy. London institutions already account for 30 percent of overseas yuan trading, and this percentage is set to rise once this initiative is put in motion.
　　In Africa, where Chinese interests have been solidified in recent decades, the push for making the yuan an integral part in Africa’s financial trade has grown stronger. In December 2010, Nigeria decided to use the yuan as part of its reserve currency. In December last year, Sudan’s central bank governor Mohamed Khair al-Zubair said his country had formally asked China to trade in yuan instead of u.S. dollars in their commercial exchanges, which is currently valued at $10 billon annually.
　　Africa’s largest bank, the Standard Bank group said it expected that by 2015, 40 percent of trade between China and Africa would be conducted in rMB.
　　“The trend of using yuan as a reserve currency has been established, but it’s still in the early days. using rMB as a reserve currency is an evolution, not revolution. There are already several central banks in Africa adopting yuan as a reserve currency, and some are considering. It is totally realistic that 40 percent of bilateral trade will be conducted in rMB by 2015,” said Stephen Priestly, Managing Director and regional head for Africa of Standard Chartered’s origination and Client Coverage group.