A review of RMB internationalisation, investment and financial products with assessment of past trends and discussion of likely future developments

Abstract

Since 2002 and the start of the Qualified Foreign Institutional Investor
(QFII) programme, the Chinese renminbi (RMB) has come a long way. In just a
few years, the RMB has been accepted as a major international currency for
international trades and payments. It was the fifth most used currency for
payments in September 2015 and the second most used currency for trades,
being recently included in the International Monetary Fund’s (IMF’s) Special
Drawing Reserve (SDR) basket. Although market adoption is real, the RMB
remains not freely usable or convertible, which has been compensated by the
implementation of a variety of investment channels. Among these are the
quotas schemes, Stock Connect, mutual funds recognition between China and
Hong Kong as well as the issuance of bonds. On all these markets, convergence
can be expected. While much has been done by China already to
internationalise its currency and enable easier access to Chinese securities
for foreign investors, some additional structural adjustments could still be
required, especially providing greater capital account flexibility and
developing deeper offshore markets. China’s next challenge might very well be
to develop new products in a controlled economy.