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HSBC Sees Yuan Convertibility Within 5 Years on China Reform

China’s yuan will become fully convertible within five years as the authorities seek to promote global use of the currency, HSBC Holdings Plc forecast.

A third of China’s total trade will be settled in yuan by 2015, up from nearly 12 percent at present, and that would make it one of the top three global trade settlement currencies by volume, economists Qu Hongbin, Sun Junwei, Paul Mackel and Wang Ju wrote in a research report received today via e-mail. China is expanding the role of the yuan in international trade and finance as it loosens controls on the currency and opens up its financial markets.

“To become a global currency requires full convertibility,” the HSBC economists wrote. “Although this will be done gradually, Beijing policy makers are now more confident than ever about speeding up the process.”

The yuan weakened 0.05 percent to 6.2181 per dollar as of 3:22 p.m. in Shanghai today. The currency has strengthened 33 percent since a dollar peg was scrapped in July 2005.

Yuan usage in the global payments system increased 24 percent in January from December and 171 percent from a year earlier, the Belgium-based Society for Worldwide Interbank Financial Telecommunication said in a report on Feb. 27. The Chinese currency accounted for an all-time high of 0.63 percent of transactions, making it the 13th most-used currency, it said.

HSBC stressed that China needs to develop accessible, deep and broad domestic financial capital markets, which is a “pre- condition” for full convertibility. Premier Wen Jiabao said on March 5, addressing an annual meeting of congress, that China will gradually realize capital account convertiblity.

--Judy Chen. Editors: James Regan, Simon Harvey

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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