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Professor highlights new challenges

YUAN settlements for cross-border trade are a landmark in the process of making the yuan an international currency, but China will have to deal with new challenges, according to Sun Lijian, a finance professor at Fudan University.

These included the efficiency of the settlement system and the risk of ebbing liquidity which may reduce demand for the yuan.

The scheme would help stabilize the value of proceeds from overseas transactions and pave the way for the liberalization of China's exchange rate and capital account but the nation should be prepared for challenges, he said.

To be an international currency, the yuan has to be able to keep or appreciate in value. Also, the current demand for the yuan may be created by the ample liquidity on the market when all governments raise spending to boost economy while people bet on the yuan to strengthen.

"There are risks that profit-taking investors quit the yuan when the global financial crisis calms down and the governments soak up market liquidity," Sun said.


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