Renminbi drawbacks

Baosteel, the state-owned Chinese steelmaker, has issued 3.6 billion yuan ($570 million) worth of renminbi denominated bonds in Hong Kong in November last year. This move is seen as highly significant, as Baosteel will be the first Chinese company, other than a bank, to sell RMB bonds directly to international investors.

However, this still does not change the fact that the yuan cannot currently be used as a reserve currency due to two main factors. First, China maintains capital controls on the conversion of its currency. And second, China's currency is seen as unattractive to central banks for holding.

Experts have stated that in order to overcome this, China needs to develop a strong open bond market. The country has heeded this criticism and has begun a drive to put the yuan on an international platform.

Global vision

The first international hub for trade in China's yuan will now be expected to be based in London. The UK's Chancellor of the Exchequer, George Osbourne, heralded the announcement of this move in January in Hong Kong.

"London is perfectly placed to act as a gateway for Asian banking and investment in Europe. The city is the largest center for foreign exchange and it is uniquely placed to assist in the development of this exciting market," Osborne told a press conference in Hong Kong.

According to UK treasury officials, the new partnership with Hong Kong puts London in pole position to be the major center for trading the Chinese currency outside the Chinese mainland and Hong Kong. Following the relaxation of strict state controls, the yuan is set to become a major, globally traded currency, in keeping with China's status as the world's second-biggest economy. London institutions already account for 30 percent of overseas yuan trading, and this percentage is set to rise once this initiative is put in motion.

In Africa, where Chinese interests have been solidified in recent decades, the push for making the yuan an integral part in Africa's financial trade has grown stronger. In December 2010, Nigeria decided to use the yuan as part of its reserve currency. In December last year, Sudan's central bank Governor Mohamed Khair al-Zubair said his country had formally asked China to trade in yuan instead of U.S. dollars in their commercial exchanges, which is currently valued at $10 billon annually.

Africa's largest bank, the Standard Bank Group said it expected that by 2015, 40 percent of trade between China and Africa would be conducted in RMB.

"The trend of using yuan as a reserve currency has been established, but it's still in the early days. Using RMB as a reserve currency is an evolution, not revolution. There are already several central banks in Africa adopting yuan as a reserve currency, and some are considering. It is totally realistic that 40 percent of bilateral trade will be conducted in RMB by 2015," said Stephen Priestly, Managing Director and Regional Head for Africa of Standard Chartered's Origination and Client Coverage Group.