KUALA LUMPUR, Oct 1 — The Belt and Road Initiative (BRI), China’s mega infrastructure project for the 21st century, is poised to widen the use of the renminbi (RMB), thus further promoting its internationalisation, said an economics professor.

Sunway University Business School Professor of Economics Yeah Kim Leng said as RMB is not fully accepted as a foreign currency, the Chinese government has to further liberalise their currency regime.

“RMB is not yet an international currency due to (China’s) capital control relatively on capital account. When capital account is controlled by rules and restrictions, there will be less confidence on RMB.

“China has to gradually liberalise its financial system so that it will be more acceptable, for example (allowing) RMB (to be) freely traded and used by residents of other countries.

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“Now it is limited… only for trade purposes. The government (China) is aware and gradually opening up and promoting the use of RMB through bilateral trade in imports and exports,” he told Bernama here today.

Yeah said initially BRI would have an impact and would increase the use of RMB amid Chinese investments and capital flows into countries involved in the initiative.

This will eventually lead to greater trade and investment and could see a wider use of RMB as the currency of exchange, for example for repaying loans, he added.

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The Chinese government needs to gradually internationalise RMB by adopting a more open approach and encouraging trade denominated in RMB, he said, adding that these could be the way for China because increased volume of Chinese goods and services would result in growing acceptance of RMB as as a transaction currency since global trade was still dominated by the US dollar.

Asked how long it would take for RMB to be fully accepted as an international currency, Yeah said:

“It would take a while… maybe a couple of decades. Its (China’s) transition to open economy and fully market-driven will take a while. It’s still dominated by state-owned enterprises, managing its currency and actively involves in financial prices, which is not so market-driven.

“It has to be a gradual process, if (it were to) open up too quickly when the market is not ready, then it would face crisis, for example, risks of capitals flowing in and out.”

Yeah said the Chinase government needed to ease restrictions, allowing RMB to freely trade in the international market and reducing intervention, adding that BRI activities in the long term would have effects and help the note to become an international currency.

Despite being the world’s second largest economy, China’s RMB is still small in global currency trade due to the restrictions on its usage in financial activities.

RMB is currently managed by a floating band, unlike the US dollar which is freely traded and any appreciation or depreciation of the greenback is mainly determined by supply and demand, reflecting its real value. — Bernama