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Analysis

Internationalisation slow but stable

by Song Ke

Internationalisation slow but stable

 

The speed of renminbi internationalisation has fallen from fast to only stable. Renmin University’s renminbi internationalisation index, reported by the school’s International Monetary Institute, illustrates the share of renminbi in the denomination of international trade and finance and in official foreign reserves. The index scores from zero to 100. Were the renminbi to be the only international currency, the index would read 100; if it were not at all internationalised, it would be zero.

The index fell to 3.06 at end-2016 from 3.96 in the third quarter of 2015, reflecting some of the challenges facing the Chinese economy, such as the risk of large-scale capital flight. This year, though the score fell to 3.04 for the first quarter, several factors will positively influence renminbi internationalisation. Stable growth is returning, while Beijing’s oft-extolled Belt and Road Initiative is committing many hundreds of billions of dollars to infrastructure projects in emerging markets.

The favourable impact of the renminbi’s inclusion in the special drawing right (the International Monetary Fund’s composite currency unit) should not be understated. The currency’s stabilised exchange rate, in addition to a projected increase in cross-border trade and the opening of China’s domestic bond market, are similarly encouraging.

Renminbi internationalisation still faces many obstacles – such as credit quality in the bond market and capital controls. The currency has embarked on a long journey, but nothing can halt its ultimately positive trend.

Song Ke is Deputy Director of the International Monetary Institute of the Renmin University of China in Beijing.

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