BNP Paribas says 2 things must happen for the yuan to go global

China’s push to internationalize the yuan will be driven by two things — funds flowing into the country and a relaxation of rules that restrict the Chinese currency from moving abroad, said the chief executive of BNP Paribas China.

The yuan is unlike other major currencies such as the U.S. dollar or the Japanese yen, which have floating exchange rates and are determined by market forces though supply and demand.

China maintains strict control of the onshore yuan’s trading rate on the mainland. The offshore yuan —which trades outside the mainland, mostly in Hong Kong and Singapore — is influenced by demand and supply, but that volume is comparatively small.

The yuan isn’t expected to unseat the dollar anytime soon, but its prominence is rising in global reserves and international trade owing to Beijing’s growing economic influence. The yuan is said to be the sixth most used currency in international payments and is used to settle about 20% of China’s trade.

Globalization of the yuan “will be driven by two things: One is the incoming funds into this country, and then the Chinese government and also the [People’s Bank of China] need to relax to allow the renminbi to go outside,” CG Lai said on Tuesday, referring to another name for the Chinese currency. His remarks came during a discussion at CNBC’s annual East Tech West conference, which is being held this year both remotely and on the ground in the Nansha district of Guangzhou, China.

China had previously eased trading restrictions around the yuan between 2010 and 2015, according to Lai. He explained that with funds now flowing into China, the country’s central bank “will have the flexibility to allow the renminbi to go outside.”

China devalued its currency in 2015 as a way to help exporters as it grappled with a softening economy and wild swings in the stock market. A cheaper currency makes a country’s exports cheaper and more competitive. Subsequently, Beijing cracked down to halt capital outflows from China.

Other investors have said that the yuan is currently attractive and is expected to strengthen on account of capital inflows, economic growth and balance of payments.

BNP Paribas says 2 things must happen for the yuan to go global, CNBC, Nov 18