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RMB goes global
The international use of China’s renminbi will continue to grow rapidly, fueling a boom in offshore renminbi capital markets, a panel of leading authorities on the currency said at Credit Suisse’s Asian Investment Conference today.
The internationalization of the renminbi has accelerated rapidly since 2009, when China introduced a pilot scheme for offshore trade settlement in its currency. Panelists at the AIC said this phenomenon would have an impact across the financial world, in areas from the reserve currency system to Asian capital markets.
Cao Wenlian, the Director-General of the International Cooperation Center and Consulting Center for Opening-up of China’s National Development and Reform Commission (NDRC), said China’s rising share of global trade meant the renminbi was on course to become part of the basket of currencies represented by the International Monetary Fund’s Special Drawing Rights (SDR) unit.
“You can foresee that, in the future, the renminbi will be a constituent currency in SDRs,” said Mr. Cao. “It’s more accepted across the globe and used more frequently.” The SDR basket of currencies presently comprises U.S. dollars, euros, Japanese yen and British pounds.
But Mr. Cao refused to be drawn on when the internationalization of the renminbi would reach the point at which it was allowed to be freely convertible. He said internationalization would need to reach a “critical threshold” but added: “I think the speed will be much faster than forecast two years ago.”
However Dong Tao, Credit Suisse’s Chief Regional Economist for Non-Japan Asia, was prepared to offer a prediction. He said Credit Suisse projected that, by 2015, 90%-95% of the renminbi capital account would be fully convertible. “There will be no one historic moment,” he said, arguing that China’s currency would move towards convertibility gradually.
John Tan, Head of Global Markets for China and co-Head of Wholesale Banking at Standard Chartered’s Chinese unit, was also making predictions. He said he expected that 20% of China’s trade – worth US$3 trillion in 2010 – would be settled in renminbi by 2015.
Mr. Tan also foresaw that the so-called “Dim Sum” bond market – in which renminbi-denominated bonds are sold in Hong Kong – would double in size by 2015. "Dim Sum" bond issuance exceeded RMB 40 billion (US$6.1 billion) in 2010. “Renminbi internationalization is going to bring a lot of business opportunities to commercial banks globally,” he said.
Hong Kong was in pole position to be the financial centre for the offshore renminbi financial market, said Carmen Chu, Executive Director (External) at the Hong Kong Monetary Authority. Ms. Chu noted that since the renminbi offshore trade settlement scheme had been extended to cover 20 Chinese provinces and cities in June last year, more than 90% of China’s trade could now be settled in its own currency if the trading partners wished.
“We do have a sort of first mover advantage because renminbi business started in 2004 in Hong Kong,” she said. Renminbi deposits in Hong Kong were first allowed in 2004 and had grown to RMB315bn by the end of January, added Ms. Chu.
But Andrew Yan, the Managing Partner of private equity firm SAIF Partners, said that investors in China still faced obstacles when trying to repatriate funds invested in China. “In the last two years, we have experienced great difficulty converting renminbi into US dollars,” said Mr. Yan.
There are three separate renmninbi markets, noted Mr. Tan. These are: the onshore market for domestic participants only; the so-called ‘CNH’ market, in which renminbi is deliverable offshore; and the non-deliverable forward market, which is settled in U.S. dollars. He said trading volumes in CNH spot and forwards had reached US$500 million to US$1 billion a day.
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