China wants to have its cake and eat it when it comes to the renminbi. Beijing is loosening restrictions on the use of the currency but not so much as to make it fully convertible on its capital account.
China has been elevating the importance of its currency in the international financial system for some time – witness the swap deals it arranged with some Latin American and Asian countries last year to provide liquidity.
Over the past few months, however, the authorities have accelerated their drive to make the renminbi more global. One recent measure includes expanding a pilot scheme to allow cross-border renminbi trade settlement. The global volume of renminbi trade settlement is growing fast, albeit from a low base. Volumes were up about 20 times in the first half of this year compared with the last six months of 2009. A number of banks are holding international roadshows to encourage companies involved in cross-border China trades to settle in renminbi rather than the dollar or euro.
In the capital markets, too, momentum is gathering for the Chinese currency thanks to recent reforms. Qualified investors can now invest onshore in China’s interbank bond market.