The increasing use of the yuan internationally could lead to a healthier global economy, but if Beijing fails to handle the project successfully it could spark currency wars and create systemic risk in financial markets, the Atlantic Council warned on Monday.
The U.S. based global affairs think tank said China needs to be more transparent in its policies and timetable for opening up its capital account, and should make credible institutional and regulatory reforms.
"For all of the dynamism in Asian markets, the Chinese financial system lacks the transparency needed to maximize robust and long-term foreign investment," the think tank said in the report sponsored by the City of London, Thomson Reuters and Standard Chartered.
The think tank also said the yuan's internationalisation was not a matter just for China, but also merited trans-Atlantic and trans-Pacific coordination.
Policy uncertainties and abrupt changes have always been one of the main deterrents for foreign investors and companies considering entering China and including the yuan in their currency portfolios.
To dispel any doubts over Beijing's commitment to liberalisation of the capital account, pragmatic timetables should be adopted and policy should be made clearer for both Chinese and foreign stakeholders, the report said.
China has launched a slew of pilot schemes to promote the use of its currency by foreign investors, and open up domestic financial markets, but the process has been gradual.
The pilot schemes are subject to frequent policy tweaks, there are no clear timetables for change, and several regulators are involved in opening China's capital account.
Still, Beijing's efforts are paying off. The yuan has become the fifth most used global currency and more than 30 percent of China's total trade is settled in yuan.
original source: http://www.reuters.com/article/2015/06/22/china-yuan-idUSL3N0Z82HK20150622