Research Paper: "How Far Can Renminbi Internationalization Go?"

I can only agree that the road ahead will be long and bumpy.  Capital controls are key.  London stands to benefit from internationalisation but there will be increased competition for this business.  George needs to be on the case.

"How Far Can RenminbiInternationalization Go?"  

ADBI Working Paper 461

YU YONGDING, Chinese Academy of Social Sciences (CASS)

Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.