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China RMB debate: The renminbi’s road to full internationalization


Euromoney’s debate involving leading executives in Asian financial services throws light on the Chinese currency’s progress to full international status and the likely developments that will hinder and advance the process.


China RMB debate participants

EXECUTIVE SUMMARY

• The volume of renminbi payments and investment in products linked to the currency is growing fast

• But it is from a relatively low base: only 0.76% of total global payments

• Renminbi liquidity outside China is also growing fast

• Slow progress in the development of China’s capital markets is a hindrance to the renminbi’s internationalization

• Confidence is increasing in renminbi stability and in the consistency of the Chinese authorities’ approach to the currency

• Non-Chinese corporates are finding multifarious uses for funds raised in renminbis

 

Elliot Wilson, Euromoney It’s hard to define precisely how a currency develops – they rarely grow in preordained and defined stages. But which events in recent times have really caught your eye: events that have convinced you that the renminbi is destined to become a truly international currency?

JF, HSBC The volume of payments made globally in renminbi is on the increase. On the execution side of deals, it’s incredible to see the diversity of issuers that are looking to tap into the pool of liquidity that is being held offshore, not just as a way of diversifying their funding requirements, but of taking the view that this currency will become more integral to the global economy in the years ahead. We also continue to see new clients buying renminbi bonds, often because they have set up funds that do just that. We are also seeing central banks participating in deals, and that means they are allocating some of their reserves to the renminbi. That has been the case for a long time, but in the past few months, more and more ‘new’ central banks have come into deals and the size of their participation continues to grow as well.

DDW, Swift Payment growth has been very robust in renminbis, so clearly there is a big interest in the currency around the world. But let’s put things in perspective: the renminbi still accounts for only 0.76% of total global payments. You have the renminbi coming up against the most used world currencies, such as the euro and the dollar. Yet despite this, over the past year, the renminbi has been able to leapfrog such currencies as the Russian rouble, and it is now even more widely used than the Thai baht, which is a semi-convertible currency. So growth has been good and there is business potential. One thing to keep in mind is that when you are looking at payments, you are looking at an aggregate, so you have to ask what is driving the use of the currency in payments. Here, it’s notable that 95% of these payments are intra-institutional, flowing between the sell side and the buy side. The other 5% is driven by corporates through trade-based import and export flows. And when I go on the conference trail and talk to officials from the People’s Bank of China [PBoC], that is really what they are interested in, as it’s the part that they feel really contributes to China’s economy. And the renminbi continues to grow in usage – it’s growing in terms of its use in global trade flows by between 50% and 80% a year, so pretty soon it’s going to bump through the 1% mark.

WC, Citic The Chinese authorities talk a lot about the development of the renminbi in real economic terms, so they tend to focus very heavily on the trade-settlement use of the currency. As a commercial bank, we need to know how to help corporates make best use of the renminbi as a means of payment; for that to happen we need to have a deep and liquid market for the currency. Over the past two years, since the CNH [the offshore renminbi] was first rolled out in Hong Kong, the depth of the foreign exchange market has increased substantially. A realistic current assessment of spot daily foreign exchange volumes would be around $5 billion to $8 billion, and if you include forward transactions that figure would be even larger. Another point is that in Hong Kong we might soon start to see interest-rate fixing for the CNH market. This would be a big development, as it would facilitate greater use of the CNH. Once we have a fixing market in place, we can start to develop renminbi-linked derivative products – interest rates swaps, cross-currency swaps and so on. That would be a noteworthy milestone in creating a truly international Chinese currency.

SW, BOCI One key point I would voice here is liquidity: the pool of renminbi retained offshore. The size of this pool has grown faster than most people expected, even though we had a minor slowdown last year, and the depth of this pool depends largely on how fast the Chinese government permits renminbis to leave the country. Renminbi deposits kept onshore in mainland China account for around renminbi100 trillion ($16.3 trillion). Yet total offshore deposits – the amount of renminbis held in Hong Kong, Singapore, London and so on – comprise less than Rmb1 trillion. Although that figure is growing fast, it’s still less than 1% of the total. I was recently in the US and a former boss asked whether he could open up a Bank of China account in New York and buy renminbi. I told him that he could, but unfortunately you can hardly use the currency to buy anything in New York. This marks out the US as an important front for the currency: you can open a renminbi account in Taipei or Singapore or London and invest in renminbis there – but the US is still a market largely lacking in these products.

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