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Internationalization of the Renminbi
By Andrew McGinty
Over the past 10-15 years China has progressively introduced a series of regulatory-driven reforms as well as more ambitious schemes like the Belt & Road Initiative to facilitate the internationalization of the Renminbi ("RMB") - the process whereby the RMB assumes the functions of a global currency.
Successful internationalization of the RMB would manifest itself in many ways, perhaps most obviously when the RMB becomes a major pricing and settlement currency in trade, a preferred financial transaction currency, and an international reserve currency. However, China still maintains strict capital controls, including on outbound direct investments by Chinese companies.
Major financial hubs like the City of London have been making huge efforts to establish themselves as offshore RMB centers - something that would have been unthinkable 10 years ago – however it remains challenging to convince the world to use the RMB as its preferred trading and reserve currency whilst it is still not free floating on global markets.
China wants the status of the RMB to mirror its position as the world's second largest economy, but is proceeding cautiously, taking a step-by-step approach, wary of exposing itself to a meltdown like in the 1997 Asian Financial Crisis or an attack on the RMB by speculators, and has not forgotten the events in September 1992 when the Bank of England was 'broken' on so-called Black Wednesday.
