Friday, November 6, 2015

Alexa Lam on the Internalisation of the RMB (J of Reg & Risk, N Asia)

"Looking ahead as the Renminbi internationalises"
Alexa Lam
Journal of Regulation & Risk, North Asia
Vol. VI, Issue 4, Winter 2015, pp 79-85
The internationalisation of a currency refers to the process where its use has expanded beyond the borders of the jurisdiction where it is issued, and markets around the world have come to accept the currency as a unit of account, a medium of exchange and a store of value.
     This paper will examine important prerequisites for the Renminbi (RMB) to succeed as an international currency, a likely roadmap from here on and the role of offshore RMB centres. The last section of this paper offers some suggestions on how Hong Kong could compete in the new paradigm of multiple offshore RMB centres around the globe.
     After more than 30 years of rapid growth, China is now the world’s second largest economy. A persistent and enormous trade surplus and foreign capital inflows have led to a sharp increase in China’s foreign reserves, causing uncomfortable pressure due to a substantial international payment imbalance.
     The risk of “hot money”has become a difficult subject, one invariably linked to the need for a market mechanism to set RMB exchange and interest rates, and expand two-way flows of capital. In 2009, China started to promote the cross-border use of RMB in a calculated manner, starting with foreign trade. 
     This is very much a broad-fronted initiative designed to improve the terms of trade and the balance of international payments, to lower exchange rate risk in international trades and official reserves, and to maintain control over macroeconomic measures and monetary policy... Click here to read the full article.

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