The day the renminbi becomes a truly ‘normal’ currency isn’t so far off now
Helen Wong tracks the stunning progress the renminbi has made of late to become widely used and fully convertible globally
The renminbi is approaching its final frontier: full convertibility and transformation into a “normal” currency used by companies and individuals worldwide in the same way the US dollar is today. The renminbi’s journey as a trade and investment currency over the past decade has been rapid and remarkable – and with reforms and international usage continuing to grow apace, full convertibility is now in sight.
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Just last December, China began publishing a new index measuring the renminbi’s performance against a basket of trade-weighted currencies, highlighting that it was no longer “pegged” to the dollar. Last August, China announced a change to the US dollar-rebminbi fixing rate, introducing more market orientation into the exchange-rate mechanism.
And on October 1 this year, the renminbi will join the International Monetary Fund’s special drawing rights basket of leading reserve currencies. Its weight in that basket will be smaller than only those of the dollar and the euro, underlining that in some respects the renminbi is already one of the world’s top three currencies.
In other areas, such as its usage in international payments, the renminbi trails not only the dollar and the euro, but also the British pound and the Japanese yen. So clearly, its internationalisation journey still has some way to go.
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But there are two powerful engines that will continue to propel the renminbi along its internationalisation path. The first is the Chinese authorities’ commitment to capital account liberalisation; the second is China’s economic transformation towards sustained growth.
