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China's renminbi (RMB), or Chinese yuan, is to become the world's third great currency, after the U.S. dollars and euro, said Douglas Flint, group chairman of HSBC Holdings plc, in an interview with Xinhua.
However, Flint also pointed out that it will probably take a few decades for the RMB to gain the share as a world reserve currency as the dollar and euro currently have.
Rise of Chinese Currency
Flint said he is excited to see the rapid growth of RMB business globally, saying the inclusion of the RMB into SDR's basket currencies would be symbol of maturity of the Chinese currency.
"The SDR is usually a symbol of maturity of the currency. I think more importantly as growing share of China's trade that is being denominated and settled in RMB, that the comfort of the world is beginning to have in the RMB as the investment currency," Flint said.
He also noted that more central banks have swap lines the People's Bank of China -- the Chinese central bank, and more reserve managers include RMB in their reserve management plans.
"And all of that shows the maturity and confidence in the currency, so I think it is terribly important that the RMB progresses toward full internationalization, and essentially become the world's third great currency, after the dollar and euro," he said.
The International Monetary Fund (IMF) executive board plans to discuss and decide in November whether to include the RMB into its special drawing right (SDR) currency basket.
But he stressed that it would take some time to reach the full internationalization of the RMB, as the market needs to acquire confidence in a yield curve of the currency's assets with more bonds issued in longer maturity, before it gains a greater part of foreign reserves managers' plans.
"I think it will take a few decades before Chinese currency rank alongside the dollar and euro in terms of the proportion of reserves. I think one of the most significant areas for the RMB would be the expansion of the bond market within China, so there will be a much broader and deeper yield curve for Chinese bond issued domestically and then internationally," he said.
He believed that London is playing a pivotal role in promoting RMB's internationalization process, as it is one of the most important markets for RMB outside of Asia as well as the world's largest foreign exchange market, because of history, because of expertise, expertise and liquidity.
From Strength to Strength
In the interview, the group chairman conveys his expectation on Chinese President Xi Jinping's visit in Britain from Monday to Friday.
Flint said:" I think the relationship between China and UK has been going from strength to strength. The evident warmth and degree of cooperation between both countries in terms of shared vision of opportunities available is quite impressive, and both sides and both countries are talking about the golden year, which is certainly a situation that we would welcome and indeed can see it being formed."
"I think the president's visit is very important. I think it would be an enormous symbol of the good relationship of the two countries, and it would be a good opportunity for both sides to talk about how they can support each other in the areas of mutual opportunities and advantages. And it would be also an opportunity to open areas of discussions that would expand trade and investment flows between both countries," he said.
He highlighted several areas that HSBC is keenly watching on President Xi's visit, saying "the going internationalization of the RMB is of huge importance to the world, to London and to financial institutions."
"The aspiration of connection between London Stock Exchange and Shanghai Stock Exchange is the evidence of willingness to explore what the future of stock trading can be globally. And a number of Chinese companies come from Chinese mainland investing overseas again is an area where the global financial system, the banking system like HSBC are very capable of helping that expansion and wanting part of China's going up policy," said Flint.
The 60-year-old banker said he felt excited about China's Silk Road Economic Belt and the 21st Century Maritime Silk Road, through which China is projecting investment and capital flow outward.
"British financial institutions and corporate to be involved in the Belt and Road build-up is an issue of exciting, not just for both countries, but for the world," he noted.
World Growth Driver
Flint, who has been group chairman at HSBC since December 2010, also tunes positively on China's economic growth and pivotal reform schemes.
"Our view on Chinese economy is it remains one of the most important countries in the world, because of its contribution to incremental growth and it is the largest going forward. Our own projection is still having China growing at around 7 percent for the next two years. And even (though) that growth is a bit below, it is still one of those significant incremental amounts of growth the world will enjoy."
According to its latest quarter macroeconomic forecast, HSBC Global Research estimates a 7.1-percent GDP growth for China in 2015, and 7.2 percent in the year next, both are higher than the market consensus.
"In terms of global economic growth, one of the most important facts is that we see Chinese economy in a number of ways. Some of the older parts of the economy are clearly challenged, and see slower growth; but the modern part of the economy, such as the digital and internet-related world, is growing very fast. The services sector is growing very fast, so there are many parts of Chinese economy," he said.
Talking about the long-term growth engines for China, Flint believes urbanization is driving the growth a lot and would be one of underpinnings to the growth in China, along with the services sector and the consumer demand.
"China will be an important source and driver for the world incremental economic growth. Chinese companies expand beyond domestic and regional boundaries to deliver the services that they are capable, and to integrate more into the global economy that would drive further growth," he said.
Exciting Reforms
He said the HSBC and its peers in the industry are very strongly supportive in enhancing the two countries' economic ties.
"One of the most exciting things over the last three or four years has been the growing number of Chinese banks in London and their expansion within London, and the roles they are playing in supporting outward investment flows into Europe, and indeed their roles in trading the RMB," Flint said.
"And the UK banks are deeply cooperative with their China's counterparts in terms of helping them build their presences in the UK as well as helping Chinese corporate build their presences and wider throughout the Europe," he said.
In the context of closer relationship between China and Britain, the HSBC announced its plan to expand its operations in the Pearl River Delta, one of most economically dynamic regions in China, earlier this year.
"The blueprint is to recognize that the Pearl River Delta is an economic regional significant importance. It has always been one of the most significant trading regions within China. The power of the Delta is not only expanding in trading and logistic but also is becoming the Silicon Valley in many ways in terms of how the social media, the internet companies, and high-tech companies are located in this part of the country."
He added that he is excited in China's free trade zones, the pivotal reform window for China's new round of reform.
"It gives China the opportunity to test the certain market development in a defined designated space, and take the learning from the experiment that takes place within a distinct area and take those that have worked well and extend them to the rest of country," he said.
The HSBC makes most of its money overseas, with Asia accounting for around 80 percent of its profit. Enditem
