World Bank President Robert Zoellick asserted that China’s currency, or RMB, will be gradually internationalized and emerge as major force in world financial transactions.
However, currently, the World Bank chief cautioned in a speech in Washington DC that China might face “uncertainties” even though it rebounded strongly from the financial crisis.

"China's future is not yet determined," he said even though the Asian giant effectively pump primed its huge economy and used various monetary polices to weather the crisis that plunged the world into recession.

Noting that China's rapid recovery was fuelled by an expansion of credit, he said "this flood is now easing, and authorities are likely to limit it further for fear of effects on asset prices, asset quality, and eventually general inflation."

Credit expanded at a red hot pace of 26 percent of China's gross domestic product (GDP) in the first eight months of 2009 and last month, the stock market slumped partly due to concerns that banks had been ordered to rein in aggressive lending.
"China still faces big uncertainties in 2010," Zoellick told a Washington forum of the Johns Hopkins University.

He said Chinese leaders recognized the risks of the continued dependence of China and other emerging economies on export-led growth.

"It will not be easy for China to shift to increasing reliance on domestic demand, especially to greater consumption that could help balance world growth while contributing to China's goal of a more harmonious society, “ he said.

Zoellick cited China's protected service sector, including financial services, saying it "limits opportunities for entrepreneurs and increases in productivity."

But he pointed out that China's rapid recovery, on the back of more than two trillion dollars of reserves -- the world largest -- had assisted other nations, underscoring its growing influence. China also holds more than 800 billion dollars in US Treasury bond investments.

The country's leaders have expressed concern over the status of the dollar as a key reserve currency as the greenback weakened on mostly ballooning deficits and debt.
Zoellick said China was moving towards gradual internationalization of its yuan currency by making it easier for trading partners to do business in it, for example, through currency swaps.

"We are likely to see this shift in the world of investment as well: for the first time this month, China issued sovereign bonds in Renminbi to offshore investors," he said.

China on Monday launched the sale of six billion yuan (US$879 million) in government bonds in Hong Kong, the Chinese finance ministry said, marking the first such offer outside the mainland.

But Zoellick felt Chinese leaders would be "cautious" as most of them want to retain the control that came from a closed capital account.

"Financial and banking markets are likely to continue to be subject to various tools of intervention and control," he said.

"Yet I expect China will be inevitably drawn outward. Over 10 to 20 years, the Renminbi will evolve into a force in financial markets."

People’s Daily online – Agencies