While delivering the government work report, Chinese Premier Li Keqiang vowed to improve the formation mechanism of the yuan's exchange rate and keep the currency stable at reasonable levels. Previously, China's central bank said that further globalization of the yuan will help the country reduce financial risks, stabilize the exchange rate and relieve the pressure from capital outflow.

In 2019, what is the outlook for the RMB exchange rate? Will the yuan undergo accelerated globalization? What are the key factors affecting its development?

Tang Yao, Associate Professor of Applied Economics at Peking University's Guanghua School of Management, sheds light on these questions. The following are his opinions:

In the upcoming one or two years, the international environment will be relatively favorable for the globalization of the RMB. Over the past few months, the market has revised its overly positive view on the US economy, and the Federal Reserve is less likely to hike interest rates multiple times this year. Meanwhile, the Chinese economy has shown signs of stabilization. The RMB exchange rate has recovered steadily from the level in the later half of 2018, reversing a dim depreciation outlook. The new-found confidence in the yuan sets a sound foundation for the globalization of renminbi.

Policy-wise, further opening-up of the financial market and the unveiling of the Guangdong-Hong Kong-Macao Greater Bay Area development plan will offer fresh momentum for the globalization of the RMB. As outlined in policies announced by the central government last year, China will further open up its financial market to foreign investors. Meanwhile, the Chinese stock market is reasonably priced, drawing a constant inflow of foreign funds. The global index provider MSCI decided to increase the inclusion factor of China A-shares this year from 5% to 20% in multiple steps. Consequently, the capital inflow factor will boost the globalization course of RMB assets. According to the Guangdong-Hong Kong-Macao Greater Bay Area development plan which was made public on Feb. 18, Hong Kong will strengthen its pivotal role in offshore renminbi transactions and international asset management. Consequently, the scale and scope of renminbi use in the greater bay area will increase. The cross-border trade of financial products in the area is expected to rise rapidly.

As the experiences of other countries have shown, mature monetary policies and a well-developed financial market are two long-term factors backing a globalized currency. The People's Bank of China has been improving and expanding its monetary policy tools to cope with short-term economic fluctuations. The central bank has been making continued efforts to push forward interest rate liberalization and improve its methods to stabilize liquidity provision via open market operations. While maintaining a generally stable exchange rate, it has reformed the exchange rate regime. All these moves have laid down a solid foundation for the globalization of the RMB. Meanwhile, China's financial market needs to develop further. In particular, it needs to accommodate more onshore fundraising in renminbi by foreign enterprises and governments so as to promote the worldwide use of renminbi.