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Depreciation fears hamper renminbi internationalization

China’s attempts to internationalize the renminbi have suffered a setback amid expectations that the currency will fall in value.

China’s attempts to internationalize the renminbi have suffered a setback amid expectations that the currency will fall in value. The volume of China’s current-account transactions settled in renminbi peaked in March and then stagnated. Their share – having surged from 1.7% in July 2010 to 13.7% in June 2011 – has declined, standing at 10.3% in June.

Dariusz Kowalczyk, strategist at Crédit Agricole, says the renminbi has still made some strides in terms of its share in global payments and trade financing, as well as its holdings by foreign portfolio investors.

“However, its bread-and-butter use by Chinese domestic and foreign trading partners has declined despite the growth of offshore centres such as London, and China’s push to establish more, including in Singapore and Taiwan,” he says.

Kowalczyk says that setback reflects the changing outlook for the renminbi, with foreign exporters more willing to receiving payments in an appreciating currency characterized by low volatility, which is what the renminbi used to be.

Indeed, there is a strong correlation between expectations of the renminbi’s performance and the share of China’s trade denominated in the unit.


Until the third quarter of 2011, foreign investors had been pricing in appreciation of about 2% per annum in the non-deliverable forwards (NDF) market, and acceptance of the renminbi in trade payments had been rising.

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