Internationalisation of the RMB - column in WSJ China
Today I have a column on the WSJ China webpage on the question of the RMB’s increasing use as an international currency. You can see the article in Chinese here.
The main points are:
The RMB will be increasingly used as a currency for valuing and settling trade with China, and policy moves by the government to allow RMB settlement in Hong Kong, Shanghai and Guangdong, as well as currency swaps with foreign central banks will facilitate that process.
However, for the RMB to be accepted as an international reserve currency it will have to be freely convertible. No one is likely to hold a reserve currency that they can only use in China.
A precondition for China to liberalise the capital account (allow full convertibility) will be to reduce dependence on trade - since as long as they are dependent on trade they wll wish to keep the capital account closed so as to be able to maintain a stable exchange rate.
So in short, as long as China’s economy remains export dependent, it will be difficult for the RMB to have any status as an international reserve currency.