China gives new impetus to yuan internationalization and promises vigilance

China announced new measures on Wednesday (17) to promote the global use of the yuan and revealed plans to better manage domestic money market liquidity.

Financial regulators also committed at the Annual Lujiazui Forum in Shanghai to prudently further open up China's financial markets as the country shifts its growth engine from real estate and investment to technology and innovation.

"As financial markets continue to deepen and develop... cross-market risk contagion may become more frequent," said Pan Gongsheng, governor of the People's Bank of China, pledging to prevent systemic risks as China "continues to integrate into the global financial system."

To promote offshore yuan operations in Shanghai, Pan said six major state-owned banks, including the Bank of China and China Construction Bank, have been authorized to carry out offshore yuan transactions in the city's free trade zone.

The central bank has also created a tool, called FIMA RMB Repo, that will allow central banks and foreign sovereign wealth funds to obtain yuan liquidity more easily by using Chinese bonds with maximum credit ratings as collateral to borrow.

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"Foreign investors, including central banks, are actively entering China's bond market, and their need to manage liquidity is also increasing," said Pan.

China is stepping up efforts to internationalize the yuan in a bid to reduce dependence on a dollar-dominated global payments system.

Pan's speech came a day after the central bank's digital yuan operations center signed direct participation agreements with 26 financial institutions in Shanghai to promote global adoption of the digital currency, also known as e-CNY.

Source: CNN