As the currency of one of the largest economies of the world, the renminbi will become an international currency, and the declared policy of gradually introducing convertibility for capital account items of the balance of payments will help achieve this status, Monetary Authority Chief Executive Joseph Yam says.

In his Viewpoint column published on the authority's website today, Mr Yam said the development of renminbi business in Hong Kong will help prepare it for the inevitable process of the renminbi becoming an international currency.

He said the use of renminbi by Mainland residents for consumer spending outside the Mainland, particularly in Hong Kong and Macau, and in foreign cities on the Mainland's border, is increasing.

Reserve currency

"There is a possibility that in the fullness of time, when the Mainland develops into one of the major economic powerhouses of the world, the renminbi may even become a reserve currency, just like the US dollar, the euro and to a lesser extent the yen are now, and an anchor currency for the region," Mr Yam said.

"I believe that this process is an inevitable one. As an international financial centre, Hong Kong must develop its capability to handle financial transactions denominated in the renminbi, which will increase. This is why we have been pushing hard for the development of renminbi business in Hong Kong and the associated inclusion of the renminbi in our sophisticated, multi-currency financial infrastructure."

He said the desirability of Hong Kong serving as the testing ground for the renminbi to get onto the world stage has also become clearer, as has the need for Hong Kong to develop its financial infrastructure to cope with the increasing volume of international financial transactions denominated in the renminbi that will inevitably come.

"These developments are not only consistent with, but also essential to, the maintenance of the status of Hong Kong as an international financial centre - a requirement laid down in Article 109 of the Basic Law, which is also a stated policy in China's eleventh five-year plan."

Rapid liberalisation

He called for caution over the implications of too rapid financial liberalisation for monetary and financial stability on the Mainland, particularly in the increasingly complex global financial environment.

"The priority is to get it right, which is important not just to China but also the rest of the world."

He said the latest development relating to the possible use of the renminbi to pay for retained imports from the Mainland for consumption in Hong Kong and the issue of renminbi bonds in Hong Kong is most welcome.