![]() ![]() For instance, China’s government and corporate debt securities markets are quite large but still seen as having limited trading volume and weak regulatory frameworks. The required reforms are very much in China’s own interests as it tries to create a foundation for sustained and balanced growth. That will require significant reforms on a variety of fronts, including financial market development and openness. ![]() However, the DCEP by itself will make little difference to whether foreign investors see the renminbi as a reserve currency. The DCEP could eventually be linked up to the cross-border payments system, further digitizing international payments. As the renminbi becomes more widely used, other smaller and developing countries that have strong trade and financial links with China might start to invoice and settle their trade transactions directly in that currency. This payments system also has the ability to bypass the Western-dominated SWIFT messaging system for international payments. For all the hype about DCEP, China’s Cross-border Interbank Payments System is a more important innovation that makes it easier to use the currency for international transactions. 5 The DCEP by itself will not be a game changer for the renminbi’s role in global finance. Moreover, China’s financial markets remain limited and underdeveloped, with a number of constraints such as a rigid interest rate structure.Ĭhina is now in the process of rolling out its central bank digital currency - the Digital Currency/Electronic Payment (DCEP). CHINESE CURRENCY RATES FREEThe renminbi’s status as a reserve currency has been impeded by the Chinese government’s unwillingness to free up its exchange rate, allowing the currency’s external value to be determined by market forces, and to fully open the capital account. Even though the IMF has officially anointed the renminbi as a reserve currency, financial market participants’ views are more important in determining a currency’s status. This term signifies its greater use in denominating and settling cross-border trade and financial transactions - that is, its use as an international medium of exchange.Ī different aspect of a currency’s role in international finance is its status as a reserve currency, one that is held by foreign central banks as protection against balance of payments crises. These measures have helped the internationalization of the currency. The government has also set up a payment system to facilitate commercial transactions between domestic and foreign companies using renminbi rather than more widely-used currencies such as the dollar and the euro. China has promoted the availability of renminbi outside its borders, including approving more than 15 offshore trading centers where transactions between renminbi and other currencies can be conducted. At the same time, there are now many channels available for Chinese households, corporations, and institutional investors that wish to invest some portion of their investments in foreign markets. Chinese stock and bond markets are now largely open to foreign investors. It has resumed removing restrictions on capital inflows and outflows in a controlled and gradual manner. 4 Other quantitative indicators of the currency’s use in international finance, including trade settlement in the currency and issuance of renminbi-denominated bonds offshore, all point to signs of a stalling of the currency’s advance as an international currency.Īfter a hiatus during the mid-2010s, when a surge of capital outflows put the renminbi under severe depreciation pressures, the government has recently resumed progress on policies to promote the currency’s international use. The renminbi’s share of international payments has fallen below 2% 3 and the share of global foreign exchange reserves held in renminbi-denominated assets has plateaued at about 2%. 2 Since then, however, the renminbi’s progress has stalled. 1 In 2016, the International Monetary Fund (IMF) included the renminbi in an elite basket of currencies that comprise the institution’s Special Drawing Rights (SDR), making it an official reserve currency. dollar, the euro, the Japanese yen, and the British pound sterling). The renminbi quickly became the fifth most important currency in international payments (behind the U.S. This put the currency on a path to what seemed to be an inexorable rise to global dominance. Around the year 2010, the Chinese government began to promote the international use of the renminbi. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |