Renminbi expansion is inevitable
by Adam Cotter
In contrast to this time last year, China has taken a more subdued approach towards the internationalisation of the renminbi. Beijing is instead focusing on stabilising the economy and on changeovers in government following the 19th Communist Party congress, held between 18-20 October. Zhou Xiaochuan, governor of the People’s Bank of China, confirmed he would leave the post ‘soon’ when asked if he intended to retire this year or next. The choice of his successor will be an expression of President Xi Jinping’s ‘grand strategy’ for the world’s second-largest economy.
Under Zhou’s leadership the PBoC has overseen the increased adoption of the renminbi on the world stage. One of Zhou’s major accomplishments was the gradual loosening of the renminbi’s dollar peg in 2005, and allowing market forces to play a greater role in setting the currency’s value. Moreover, while the PBoC does not possess total autonomy with regard to deciding policy, it did gain some independence from the governing state council. This may, however, be at risk if the council decides to exercise more control behind the scenes, in an effort to steady China’s economic transition.
Twelve years on from the 2005 reforms, renminbi internationalisation has reached an inflection point. Further detachment from the dollar is inevitable, and the currency is likely to become a more proactive force in international markets. By leading the cross-border Belt and Road infrastructure initiative, China will expand the use of the renminbi in connected countries thanks to improved international payment and settlement facilities. Although Beijing will maintain a low profile – Xi has already sought to allay concerns about its ambitions among China’s neighbours – there is already encouraging renminbi growth in countries along the ‘maritime silk road’.
Upon joining the World Trade Organisation in 2001, China pledged to relax incrementally its currency regime. There are calls for the PBoC to let the market play a greater role, but Beijing is likely to retain considerable control of its economy. The leadership is in no rush to relinquish authority to market forces. We remain in a dollarised world; but amid the restructuring of the world economy, the long-term trend will be one of greater renminbi adoption on global markets.
Adam Cotter is Head of Asia at OMFIF. Back