Convertibility between the yuan and the Hong Kong dollar is a prerequisite of and a major step towards the internationalization of the Chinese currency, former Governor of the People's Bank of China, Dai Xianglong, said in Shanghai on April 2.

The internationalization of the yuan reflects the growing importance of the Chinese economy in the world market, said Dai. The final goal is full current account and capital account convertibility, use of the yuan in international settlements, as a reserve currency.

"The internationalization of the RMB will be a long process. It may take 15 to 20 years," Dai Xianglong said.

Along the road to full convertibility, Dai said the yuan will move from a regional to a world role and China will make bilateral agreements with other countries to use the Chinese yuan instead of the US dollar to finance trade deficits, loans and aid payments.

The ex-central banker said the first step should be to make the RMB fully convertible with the Hong Kong dollar.

He said convertibility between the yuan and the HK dollar will not affect the linkage between the US dollar and Hong Kong dollar.

The RMB will not replace the local currency in Hong Kong but will be an additional international currency besides the US dollar. This will strengthen Hong Kong as an international financial centre, Dai said.

At the same time Hong Kong will serve as an offshore centre for the yuan and will facilitate the development of the RMB as an international currency.