China expects currency breakthrough within 5 years

China expects currency breakthrough within 5 years China will achieve a major breakthrough in full convertibility of the yuan over the next five years, Hu Xiaolian, deputy governor of the People's Bank of China, said on Friday. "Conditions for the yuan's convertibility under the capital account are improving and the fast development of yuan-based cross-border trade settlements will help push the process forward," Hu told a news briefing. He also urged reform of the country's exchange-rate regime by integration with the floating exchange rates of the international system. Xia said China should aim to make the yuan account for about 3 to 4 percent of the total international reserves by 2020. China is actively pushing the internationalization of its currency by allowing its companies to make overseas investments in yuan. The central bank is also considering giving foreign companies the green light to make yuan investments in China. However some economists warned that under current market conditions a more convertible yuan could lead to substantial appreciation of the currency and huge capital inflows. Meanwhile, there is speculation that China will speed up the pace of yuan appreciation to ease the high inflationary pressure. The consumer price index (CPI), a major gauge of inflation, rose 4.9 percent year-on-year in February, according to the National Bureau of Statistics. "A faster rate of appreciation is a policy tool that could be used to ease inflationary pressure, given that imported inflation remains a source of concern to the government," Jian Chang, an economist at Barclays Capital, said in a report. "We continue to look for a gradual yuan appreciation versus the US dollar at a pace of around 5 percent a year," Chang said.