As one of the world's strongest currencies in 2013, the renminbi is expected to further solidify its position as an international currency this year.

Still though, the yuan only accounts for a tiny portion of other countries' foreign reserves, according to a recent report from the International Monetary Fund. Given the size of China's economy and trade portfolio, its currency should represent 10 to 12 percent of the world's foreign reserves.

China's capital account is not liberalized. Since overseas investors cannot freely invest in the country's financial market with offshore yuan, their incentives to hold the currency are limited. Once the yuan starts to depreciate, most foreign investors will sell it off, since it is hard for them to recover their loss through investment.

To promote the yuan's internationalization, China needs to further open its capital account. Continued economic growth and more transparency in monetary policy would also enhance investors' confidence in the currency.

The author is Huang Yiping, deputy dean of the National School of Development at Peking University.

China Economic Weekly