Illustration: Peter C. Espina/GT
Mark Boleat Photo: Sun Wei/GT
Editor's Note: Mark Boleat, chairman of the Policy and Resources Committee at the City of London Corporation, paid a visit to Beijing and Shanghai from July 5-8, to maintain and nurture bilateral relations between the financial services sectors in both countries. Prior to his visit, Global Times reporter Sun Wei interviewed Boleat in London, asking him about progress in the yuan's internationalization.
GT: What's your evaluation of the progress in the yuan's internationalization? How far away are we from having a freely convertible yuan, and what are the main challenges?
Boleat: It has made extraordinary progress that nobody could have considered feasible five years ago. We've seen that in the growth of volume of business. In effect, the yuan is freely convertible on the current account, so it can be freely used for any trade transaction.
The main challenges for the yuan's internationalization relate to China's overall financial markets. They are moving from a command economy toward a more market-driven economy. It is the market that is driving the reforms, but to get from the starting point to the end point is not easy.
There's a lot to do in opening up the Chinese markets generally, and not simply removing controls.
GT: Compared to five years ago, do you see a big change in the status of the yuan?
Boleat: What we've been trying to do in Britain is to ensure that trade with China can use the yuan freely. Some of that is not difficult, but sometimes there are psychological or cultural barriers to overcome. The yuan now stands alongside the dollar, euro, sterling and yen as a major international currency. Trade between China and anywhere else is increasingly using the yuan as the default currency.
GT: What effect is the yuan's internationalization having on the global financial system?
Boleat: The global financial system is still dominated by the US dollar, but the yuan is rapidly increasing its usage. It's a long way from where the dollar is, but while previous transactions were always denominated in dollars, people are now looking at the yuan. A good example is that a lot of Russia's trade with China is denominated in US dollars, but now the people involved in it are asking why they are using dollars. It's a very significant development, and the Americans need to take this into account as well. They are always assuming that they have a lot of say in how the global financial system works. But together with the Europeans, now you have the Chinese that are really important, particularly in Asian markets.
GT: The US Congress has prevented the 2010 IMF reforms from taking effect. Some US scholars have said that Europe is also hesitant about giving more weight to emerging economies. What is your comment on this?
Boleat: China's economy is now either the biggest or the second-biggest in the world. And therefore, it has to get its proper position in the global financial system, and a weighting that reflects that.
The US congress was resistant to the reforms, even though the IMF wanted them to be passed. The risk from this is that business might be conducted elsewhere. The Asian Infrastructure Investment Bank (AIIB) is an example of this. The fact that China decided to set up the AIIB - and that within a short time, all of the major economies apart from the US and Japan had joined it - is an indication of the importance of China and the yuan.
I don't see hesitance in Europe. In Britain, we don't go into things without careful thought and Britain wants to be fully involved (in the AIIB). It's important to get the governance and organization right. There might have been concerns that the AIIB could be dominated by China, but there are so many other countries involved now that it reduces that risk. There is no great surprise among many people we talked to in the US that this has happened. Britain, more than anywhere else, has recognized the impact of the growth of China. I don't think this is fully recognized in other countries, particularly the US, which is understandable, given the size of its economy and the way it looks at things.
GT: Why is it important for the IMF to have governance and quota reform? What would be the benefits for China from the yuan being included in the IMF's reserve basket?
Boleat: The IMF, like any international agency, has to reflect the size of the economies of its members. The Chinese economy has grown and that has to be reflected in the IMF and the World Bank. There is a general agreement about that, but it always takes time for changes to happen.
Including the yuan in the IMF'S Special Drawing Rights currency basket is part of the regular review of the weighting. Are there any huge technical advantages? I don't think so. But what's happening in the marketplace needs to be reflected.