The dynamics and outlook for RMB internationalization

Abstract

China’s economy grew steadily in 2013. Financial reforms advanced in an orderly manner, policies guiding the cross-border use of the RMB experienced breakthroughs and improvements, and international trade and financial cooperation deepened. In particular, offshore markets developed very rapidly. Five main pillars have come together to push RMB internationalization into the next phase. In the third quarter of last year, the RMB internationalization index (RII) surpassed a level of 1, heralding the beginning of the RII’s single-digit era. Boosted by growing market demand and the release of the “reform dividend”, the RMB saw a noticeable increase in its share of use in global markets despite greater exchange rate volatility, hot money arbitrage, and financial turmoil in emerging markets triggered by the tapering Quantitative Easing (QE) in the US. It is estimated that the RII will climb to as high as 1.88 by the end of 2014.