Long journey

But he said China still requires much time to float the yuan globally. "If I were them, I would be very cautious to do that after the financial crisis."

He made the comment at the DBS Asian Insight Conference on July 5.

Lee said that the new leadership in China has not made big moves in terms of economic restructuring, and it seems China has a split desire on the yuan. On the one hand, the country wishes to promote its internationalization; on the other hand, it does not want to open the capital account.

"If your currency is going to be a global currency, you need to open up your capital account."

The internationalization of the yuan will not be a five-year process. Instead, it may take 50 years, said Luo Xi, senior executive vice-president of the Industrial and Commercial Bank of China, the yuan-clearing bank in Singapore.

He said last year, settlement in yuan only accounted for 0.87 percent of world trade, and there are still many uncertainties surrounding wider acceptance of the currency.

"Whether floating the yuan globally will be successful depends on whether China's economy and recognition among the international community will be robust enough, and whether China could strike a balance between capital outflows under the capital account and inflows under the trade account in the future."

In addition, coordination between China and United States currency policies, and the interest and exchange rates of the yuan between the domestic and overseas markets, are much-needed to further develop the yuan's acceptance, according to Luo.

David Carbon, chief economist at DBS Bank, said increasing trading in the yuan instead of the dollar could help Asia avoid a credit crunch like the market witnessed in 2008.

But the process of the yuan's internationalization calls for the opening of China's capital account, and a clearer and more transparent banking system, he added.

For Lee, Chinese authorities also need to work on how to transfer yuan raised overseas back to the mainland, where investors are still more inclined to put their yuan-denominated assets.

The recent turbulence in China's financial market, uncertainty about economic growth and increasing depreciation expectations related to the yuan as the US tapers off quantitative easing policies will also pose a threat to the wider acceptance of the yuan, said analysts.

The currency appreciated by 1.7 percent in the first half of 2013, in contrast to the 1.03 percent throughout last year.

The exchange rate of the yuan is unlikely to witness a dramatic surge or dive, but the market faces a shortage of offshore yuan interest- and exchange-rate products, according to Luo.

ICBC is in discussion with three major banks in Singapore to develop such products, he said.

Singapore joined Hong Kong, Taiwan and Macao in having a yuan clearing bank in February. One month later, it doubled the size of its currency-swap arrangement with China to 300 billion yuan.

In May, the MAS opened its first representative office in Asia in Beijing, a sign of Singapore's readiness to play a bigger role in the yuan's internationalization.

The Beijing office is the authority's third overseas after London and New York.

Also in recent months, four commercial lenders, Standard Chartered Plc, HSBC Holdings Plc, DBS, and United Overseas Bank Ltd, launched the first batch of offshore yuan-denominated bonds in Singapore, totaling 2.5 billion yuan.

The first month of yuan clearing business in Singapore has exceeded 60 billion yuan since ICBC started to offer the service on May 27.