China currency liberalization to be a 'seismic event': Australia [View all]

By Wayne Cole
SYDNEY Thu Mar 27, 2014 3:12am EDT

(Reuters) - China realizing its ambitions to internationalize the yuan is likely to be a "seismic event" for global markets, leading to large capital flows and perhaps a new reserve currency, a top Australian central banker said on Wednesday. Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the process had some way to go yet but that Beijing had signaled its seriousness by last week widening the trading band for the yuan, also known as the renminbi (RMB).

"The internationalization of the RMB - and China's associated move towards a liberalized capital account and more flexible exchange-rate regime - has the potential to create a seismic shift in the international monetary and financial landscape," Lowe said in a speech to the Centre for International Finance and Regulation (CIFR) conference in Sydney.

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"Once capital controls have been removed and interest rates and the exchange rate are market determined, the structure of the RMB market - and indeed of global capital markets - will look quite different," said the report's authors, Kathleen Walsh, Geoff Weir and Barry Eichengreen. The renminbi would become one of the most widely traded global currencies, and mainland China's equity market could be the largest in the world, with a capitalization of around $30 trillion, the report said.

China's bond market could be the global No.2 behind the United States and equal to the entire euro zone. "The RMB is likely to be a significant part of central bank foreign exchange reserves and RMB government securities may well become the main alternative "safe asset" to U.S. Treasuries, with important implications for global capital flows and financial stability," it added.

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