Zhang Monan

Global role for renminbi

By Zhang Monan (China Daily)
Updated: 2010-06-23 07:56

Due to its growing influence, some Southeast Asian nations have chosen the yuan as the settlement currency in their trade with China.

China must gradually hike the yuan's share in international trade settlements and develop it into a key reserve currency

Saturday's decision by the People's Bank of China to reform the renminbi exchange rate formation mechanism has underscored the monetary authority's sense of urgency regarding exchange rate flexibility as well as its determination to adjust the nation's long-held passive position on the matter.

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China's rapid economic development and its deepened integration with the global economy over the past three decades have greatly elevated its influence on the world stage.

The country's unwavering efforts to maintain the yuan's stability during the 1997-98 Asian financial crisis, which was in sharp contrast to that of many other nations who rushed to devalue their currencies, garnered for itself the status of a responsible power.

China's reputation and its growing economic influence globally has once again been highlighted by its responsible attitude toward the financial crisis and its well-intentioned moves in its aftermath.

Emerging economies have taken the lead in global economic recovery, with developed countries being left far behind.

Due to their strong domestic demand and declining economic dependence on Western countries, emerging economies like China have enjoyed faster growth than the rest of the world during the past year.

China, India and Brazil achieved 11.9 percent, 8.6 percent and 9 percent economic growth respectively in the first quarter of this year.

According to the International Monetary Fund (IMF), developing nations are expected to see a growth of 7.7 percent in their gross domestic product (GDP) year on year in the first quarter. This is 5.5 percentage points more than that of developed countries.

China's imports have outgrown exports ever since the global financial crisis. This is testimony to the fact that the country's robust domestic demand has already been extended to the rest of the world. As such, this will serve to gradually increase the influence of the yuan and the country's macroeconomic decisions on the world economy.

In its quarterly report on China's economy published on June 17, the World Bank pointed out that the renminbi's nominal effective exchange rate had increased by 14.33 percent by the first quarter since Beijing launched the yuan's exchange rate reform in July 2005, and its real effective exchange rate had increased by 18.28 percent.

During this period, the Chinese currency rose by 21.24 percent and 9.34 percent respectively against the dollar and the euro, and decreased 0.49 percent against the Japanese yen, according to the report.

In particular, China chose to revalue the yuan by a 14.5 percent range in terms of its real effective exchange rate from July 2008 to February 2009, the most difficult period for the world economy.

This indicates the country's attitude as a responsible power, and its desire to maintain global economic stability. Since the global financial crisis, China has taken substantial steps towards developing the renminbi into an international currency in neighboring regions.

Due to its growing influence, some Southeast Asian nations have chosen the yuan as the settlement currency in their trade with China.