that it will play a role in the internationalisation of china ’ s currency. the euro area is also home to global companies with extensive operations in china and an evident interest in conducting operations in renminbi. the currency ’ s trade settlement scheme is the main link between both markets, on and offshore. this scheme was initially developed to foster the development in offshore markets, offering several benefits to foreign trading partners : ( i ) the possibility of negotiating better trade terms when invoices are denominated in renminbi rather than the us dollar ; ( ii ) a natural hedge as both trade partners issue invoices in the same currency ; ( iii ) access to small and medium - sized chinese firms that are unable to contract in foreign currency and ( iv ) the scheme offers the possibility of benefiting from capital gains, as the renminbi is expected to appreciate in the years ahead. the main prerequisite for engaging in trade settlement is to involve a bank that can settle transactions in the interbank market in mainland china and convert currency in the onshore foreign exchange market. typically, there are two channels through which renminbi trade settlement is possible : ( i ) via a mainland correspondent bank, where the offshore bank of a foreign trade partner settles trade invoices with chinese firms via an account with that correspondent bank, with the renminbi proceeds subject to chinese regulations ; ii ) via clearing banks licensed by the pboc to operate offshore ( bochk for hong kong ), where the offshore bank settles trade invoices via an account with that clearing bank, buying or selling renminbi in the offshore market ( at the cnh rate ). since the expansion of the scheme, renminbi trade settlement has increased sharply, accounting for around 15 % of china ’ s total foreign trade in the third quarter of 2013, with prospects for further growth as more offshore centres open across the world. conclusion in conclusion, the internationalisation of the renminbi offers many opportunities, both for chinese and international investors and corporates, including in the euro area. nonetheless, to fully reap the benefits of this process, china needs to continue reforming its economy, in particular its financial sector, along a clear, well - sequenced path to minimise risks and enhance confidence. equally, chinese and international investors and financial institutions must make a realistic assessment of the risks involved in cross - border investment, and build up commensurate buffers. in view of these risks,

well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risk. i want to stress that this proposed approach is in no way intended to replace the judgement and expertise of bank management, or to shift responsibility for capital adequacy to supervisors. on the contrary, it is well understood that bank managers have the most complete understanding of the risks their institutions face, and it is they who have primary responsibility for managing those risks. most importantly, in proposing this second pillar, the committee intends to foster a more active dialogue between banks and their supervisors, such that when deficiencies develop, prompt and decisive action can be taken to restore capital. pillar 3 : market discipline the third pillar of the new capital adequacy framework, market discipline, will serve to reinforce capital regulation and other supervisory efforts to promote the safety and soundness of banks and financial systems. to this end, the committee has been working to formulate a set of disclosure requirements that will ensure the availability of sufficient information to assess the appropriateness of a bank ’ s capital relative to risk, while taking into account the bank ’ s proprietary needs. this is particularly important in relation to the internal ratings approach to credit risk. in january of this year, the committee issued a discussion paper detailing guidance for strengthening the third pillar of the new capital framework. this paper provides recommendations on disclosures of banks ’ capital structures, risk exposures and capital adequacy. the committee is continuing to expand on these recommendations as its work on the first and second pillars of the new capital framework evolves. as the committee continues to fine - tune the new capital framework, we are focusing on issues of primary concern to the industry and supervisors world - wide, seeking to avoid getting bogged down in secondary issues that could slow the overall process. this most certainly is a broad - scoped effort that will not, indeed cannot, meet every priority and concern of everyone. but we are well aware that the perfect cannot be the enemy of the good. with this in mind, i fully expect that we will meet our goal of releasing a new capital adequacy framework by early next year, followed by a short international comment period and then implementation in each of the member countries. conclusion in conclusion, let me simply say that the dawn of the twenty - first century is a time of unprecedented opportunities and unique challenges for financial institutions and supervisors alike. in meeting the challenges posed by technological advancements