Currency is the cornerstone of a country's financial system. The internationalization of a currency indicates the country's international status, its comprehensive strength and its capability to provide global financial services. In this regard, the internationalization of the renminbi will not only benefit China, but also contribute to the long-term stability and prosperity of the world economy.

The influence of the renminbi may exceed that of the British pound and the Japanese yen by 2035 and become equivalent to the euro, as the share of the renminbi in the International Monetary Fund's Special Drawing Rights is expected to reach about 20 percent, about 15 percent in global trade settlement and 10 percent in official foreign exchange reserves.

By 2050, the renminbi is likely to become the international currency second to the dollar, representing 30 percent in both the IMF's SDRs and global trade settlement and around 25 percent of the world's official foreign exchange reserves.

To push forward the internationalization of the renminbi, the country needs to seize every opportunity and make timely moves.

First, China should optimize its exchange system to enhance the free float of the renminbi in areas such as cross-border securities transactions, and gradually reduce the restrictions on the number of foreign investors and their investment quota.

Meanwhile, it needs to raise the efficiency and effectiveness of its management of the negative list, improve its supervision of international capital flows and develop a regulatory system for foreign exchange management in line with the country's opening-up of its finance sector.

The country also needs to improve the exchange rate mechanism, enrich trading entities and products, and increase the scale and activity of transactions, so as to achieve leapfrog upgrading of its foreign exchange market.

Cross-border financial infrastructure also needs to be improved. Efforts should be made to integrate existing cross-border systems or services such as payment systems, clearing banks and correspondent banks.

Further, China needs to strengthen international cooperation in areas such as renminbi-denominated bonds and make its mechanisms and rules more in line with those of other international financial markets and institutions.

By establishing renminbi product custody and clearing institutions in Hong Kong, obstacles in international financial transactions can be reduced so as to increase the liquidity of relevant renminbi assets.

Besides, we can stimulate the potential demand for the renminbi by improving its international pricing and clearing functions, which includes launching direct renminbi trading with more currencies, and improving the mechanism for fending off risks in domestic and overseas clearing.

China can further develop financial transaction functions by giving full play to the advantages of domestic cross-border e-commerce, third-party payments and mobile payments. It can also improve the international reserve functions of the renminbi by increasing the variety and scale of renminbi currency exchanges, increasing its physical gold and silver reserves and seizing opportunities to increase the proportion of the renminbi in the IMF's SDRs.

Among other things, international cooperation between monetary authorities and financial institutions needs to be further strengthened. China can begin by improving cooperation on currency exchanges and international clearing with the eurozone, the Association of Southeast Asian Nations members, Japan, the Republic of Korea, and the member states of the Shanghai Cooperation Organization and BRICS.

It also needs to give full play to the role of market mechanisms, focus on the Asian Infrastructure Investment Bank, Silk Road Fund and China Development Bank, and improve financial services for countries participating in the Belt and Road Initiative in a targeted manner.

To prevent and defuse risks, the country should focus on key trade, investment and financing projects, and improve the international functions of the renminbi.

The role of the renminbi in global bulk commodity trading also has room for further growth. So, China needs to develop Shanghai into an international financial center, expand the scope of the renminbi's use in bulk commodity trading, increase the types of transactions, make trading more convenient, deepen the cooperation between futures and spot and enhance the capacity of renminbi pricing on relevant trading products.

And it needs to improve innovation of renminbi-denominated international products, services and mechanisms, appropriately develop financial derivatives to expand two-way renminbi flows, innovate renminbi buyer credit services and increase renminbi use in international trade, initially by focusing on mobile payments and cross-border e-commerce, improve renminbi-based pricing and clearing mechanisms in the global retail market and promote digitization and technology-based management of renminbi issuance.

However, steady efforts are needed for the internationalization of the renminbi, it will not happen overnight.

The author, Doctor of Economics of Nankai University, is researcher and director of China Center for International Economic Exchanges. 

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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