The Renminbi as an Emerging World Currency

Richard C K Burdekin

doi:10.4172/2168-9458.1000118

Abstract

Although capital controls ensure that worldwide use of China’s currency, the Renminbi, has lagged far behind the nation’s influence on world markets, China’s currency is seeing greatly increased use in cross-border trade as a vehicle currency. This trend accelerated in the aftermath of the global financial crisis amidst successive agreements with neighbouring countries such as Japan and Russia to move away from the dollar in favour of using their own currencies for bilateral trade. Other key steps include the establishment of a full offshore Renminbi market in Hong Kong in 2010 and the September 2013 establishment of the Shanghai free-trade zone. Meanwhile, offshore Renminbi bond issuance not only reached a cumulative total of nearly RMB 400 billion in Hong Kong by the third quarter of 2013 but also was being joined by such new offshore Renminbi bond centres as Singapore, Taiwan and London. It is no longer so farfetched to imagine the greenback being replaced by a new ‘redback’ standard in the long run.

Highlights

For decades China’s economic progress was stifled and hidden from the rest of the world behind Chairman Mao’s ‘bamboo curtain.’ the remarkable growth over the post-1978 reform period has launched the country into a major player in the world economy
The post-2007 global financial crisis induced recessions in many western economies, Chinese growth remained quite robust despite the damage to many of the nation’s main export markets
Continued Renminbi penetration in Hong Kong, and its eventual dominance there, seems assured, the future role that the Renminbi will play in Asia as a whole remains much less clear

Summary

Introduction

For decades China’s economic progress was stifled and hidden from the rest of the world behind Chairman Mao’s ‘bamboo curtain.’ the remarkable growth over the post-1978 reform period has launched the country into a major player in the world economy. The post-2007 global financial crisis induced recessions in many western economies, Chinese growth remained quite robust despite the damage to many of the nation’s main export markets. After holding the exchange rate with the U.S dollar essentially fixed for nearly a decade, the initial 2.1% revaluation from 8.28 RMB/$ to 8.11 RMB/$ on July 21, 2005 has been followed by a gradual strengthening of the Renminbi. This appreciation has been accompanied the growing Renminbi usage in settling international transactions and increased Renminbi circulation in Hong Kong and in other Asian economies [2]. In shifting cross border currency transactions away from the dollar and towards the domestic currency, Renminbi internationalisation can help reduce ongoing reserve accumulation pressures [3]

A Global Role for the Renminbi?

Findings

Conclusions