Expectation that currency's value will fall gives rise to fears of sell-off by foreign investors
Jul. 3 - The renminbi's predicted depreciation will not diminish London's expectation of seeing the currency used more often, a senior official with the city said on Monday.
The daily renminbi reference rate released by the People's Bank of China fell by 0.48 percent in the second quarter of the year, marking the largest depreciation seen in a single quarter since 2005.
The idea that the renminbi has ceased appreciating has given rise to fears that overseas investors will sell off their renminbi stock, resulting in a shortage of the Chinese currency in offshore markets.
Mark Boleat, chairman of the City of London's Policy & Resources Committee, denied that such developments would greatly affects plans to make the renminbi an international currency or halt London on its path toward becoming an offshore yuan center.
"Clearly people will be less inclined to purchase assets in renminbi because they are not expecting an appreciation," Boleat said in Beijing. "But you cannot have a global currency where there is only one way of expectation.
"It's the maturity for China's financial system for the renminbi to be no longer considered undervalued, expect for some people in America."
Meanwhile, Boleat said one short-term goal is to have more trade settlements financed with yuan.
"If China's trade out of the US can be denominated in renminbi, it will produce a fair amount of liquidity in the market," he said.
A report prepared by Trusted Sources UK Ltd, a market researcher, showed that most British corporations involved in yuan businesses expect to begin using more of the currency as Chinese government encouraged more cross-border trade settlements and establish more means for offshore yuan to be invested back onshore.
According to the report, "importers can cut costs by paying renminbi instead of (US) dollars for the goods and services they purchase from China, because Chinese suppliers will offer 2 to 8 percent discounts for settlement in yuan."
While expecting renminbi to be used more often in deposit and corporate finance, Boleat said London is also developing new products and services, mainly in trade finance, to find better ways to deal with existing trade.
"But that will not be 'surprising new products', just existing products in other currencies, but not yet in renminbi," he said.
Although the internationalization of the renminbi is still at its initial stage, Boleat said, many financial institutions in London are already taking steps to use it.
"There isn't going to be a day when London declares it has become an international renminbi center, but it's going to evolve gradually overtime."
Boleat said there is no target set for when London will begin competing with Hong Kong, which is now the largest offshore renminbi business center.
"Hong Kong is far more connected to the Chinese mainland than London ever will be, but I see the two as being complementary," he said.
As for Shanghai, which the Chinese government has the ambition of making into a global financial center, Boleat said: "It is a big financial center only because it is the financial center of a huge economy, but it is not really international.
"You cannot have a financial center with a currency that is not convertible," Boleat added.