Economy >Tertiary Industry
Renminbi Internationalization
Renminbi Internationalization refers to the cross-border flow of RMB and become an internationally accepted currency forinvoicing, clearing and reserve. Renminbi internationalization is a long-term strategy. So far, the Renminbi has been accepted by many countries as a currency for payment and settlement, and has even gained the status of hard currency in many countries in Southeast Asia. Although the current overseas flow of renminbi does not mean its internationalization, the expansion of its use will inevitably lead to the internationalization of renminbi as an international currency.
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RMB Internationalization: Onshore/Offshore Links

In light of international experience, this section will analyze the potential for the RMB to play a greater international role, while highlighting the authorities’ efforts towards that goal. The discussion at the end of this section will also point to a number of risks to the process of RMB internationalization. The process of RMB internationalization is already off to a good start with rapid growth in its use for cross-border trade settlement and the expansion of investment vehicles denominated in it. For instance, RMB cross-border trade settlement expanded fourfold from less than RMB 50 billion in August 2010 to almost RMB 200 billion in September 2011, supporting rapid growth in RMB deposits in Hong Kong SAR, which stood at over RMB 600 billion in October 2011. In addition, the central bank (People’s Bank of China, PBoC) is setting up currency swap lines1 with other central banks within Asia and outside, with several countries announcing plans to add the RMB to its foreign exchange reserves, including South Korea and Japan.

Renminbi internationalization makes new strides

The renminbi is making strides on its way to internationalization, following the latest revision of rules on the scope of foreign institutions' investment, a research team said Thursday. The National Interbank Funding Center under China's central bank, on Tuesday revised regulations to allow foreign institutions to invest in Negotiable Certificate of Deposit (NCD), an important funding source for banks, in China's interbank market. The access expansion may have limited short-term impact, but it represents an important step toward renminbi internationalization, China International Capital Corp. (CICC) said in a research note. China's central bank opened the interbank bond market to foreign central banks in July 2015 and refined the access procedures in April 2016. It also opened the market to non-official foreign institutions in February, covering foreign commercial banks, insurers, securities companies and fund managers. It may take time for foreign investors to adapt to the access procedures as well as renminbi volatility. Their participation may increase at a slow pace in the beginning, CICC said. "However, the action marks China's continued efforts to open its financial markets and increase the investability of the renminbi," it added. On Wednesday, the Monetary Authority of Singapore announced that it will include renminbi investments as part of its official foreign reserves starting from this month. Despite the recent exchange rate volatility, the latest development shows that renminbi internationalization is still under way. As it plays an increasingly important role, the foreign demand for the renminbi assets tends to grow, according to CICC.

CHINESE RENMINBI INTERNATIONALIZATION GUIDE TO RECENT DEVELOPMENTS

The RMB is also moving toward becoming a global investment currency, as offshore RMB may now be used for capital investment. The RMB is viewed as an asset class, with market participants using the currency as an investment vehicle. On November 30, 2015, the International Monetary Fund (IMF) approved the inclusion of the RMB in its Special Drawing Rights (SDR) basket of currencies to take place on October 1, 2016, positioning the RMB with the elite global currencies, including the U.S. Dollar, British Pound, Euro and Japanese Yen. While there is more progress to be made in RMB’s internationalization quest, the inclusion is a significant milestone and may serve as a catalyst for further reform.

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1 The yuan's internationalization has progressed steadily in recent years, according to the 2016 Renminbi Internationalization Report, which was released by the institute during the forum.

2 As of the end of 2015, the Renminbi Internationalization Index (RII) stood at 3.6, a year-on-year increase of 42.9 percent and an increase of more than 10-fold over the previous five years, said the report.

3 3.GT: AIIB's President Jin Liqun has ruled out lending in currencies other than the dollar, signaling that Beijing will not use AIIB as a platform to promote renminbi internationalization. What does this signify?