The era of RMB? An overview of the RMB roadmap
China is on track to become a global superpower, and its currency, the Renminbi ("RMB"), is playing an increasingly important role internationally. The trend of RMB internationalisation involves more liquid global circulation of RMB and wider recognition of RMB as a denomination, settlement and reserve currency.
However, despite the enhanced role of RMB, investors are yet to grasp the significance of RMB internationalisation. Not only does RMB internationalisation signify a higher degree of RMB usage, it also facilitates the inflow of foreign capital and the outflow of onshore RMB funds. Improved fund flows are conductive to investors' portfolio management given the wider spectrum of investment options available for hedging risks and enhancing the efficiency of investment.
On the other hand, the progression of RMB internationalisation is expected to fuel global appetite for RMB and related assets, which translates into accelerated structural reforms in China's financial industry. A well-developed financial market in China will in turn propel a broader range of RMB investment products while reinforcing the protection of investors.
How far have we gone in the journey of RMB internationalisation? And how long will it take for RMB to complete the final miles on the road to becoming a global currency? The inclusion of RMB in the International Monetary Fund’s ("IMF") Special Drawing Rights ("SDR") currency basket towards the end of last year may shed some light on these questions. The inclusion, which comes into effect this October, symbolises official recognition of RMB. It encourages the widespread use of RMB across the world, marking an important milestone in RMB internationalisation.
Although SDR inclusion does not indicate the completion of RMB internationalisation, a report compiled by The Economist Intelligence Unit ("EIU") and commissioned by UK Trade & Investment showed that most financial services executives expect RMB to be fully convertible in around five years and to become a global investment currency in seven to 10 years. Therefore, a truly internationalised RMB is on the horizon.
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