A report from Thomson Reuters, Standard Chartered, the Atlantic Council and the City of London explores how China’s currency impacts global markets, foreign policy and transatlantic financial regulation.
Being deeply involved and enabling the intersection of currencies, commerce, regulation and development, we asked ourselves: “What does the rise of the renminbi (RMB) really mean for financial markets and centers, regulatory development, investment inside and outside and foreign policy?”
We partnered with Standard Chartered, the Atlantic Council and the City of London to jointly research and understand these questions and gain greater insight, awareness and profile for our businesses globally.
The final report is a comprehensive overview of the staggering development and internationalization of Chinese financial markets over the last 10 years and lays out four key challenges for the world and several principles and recommendations for the development to continue and succeed. The recommendations concern market structures, legal and accounting infrastructure and transparency, rating agencies and debt markets, rules for bankruptcy and derivatives and more. These are based on our insights and expertise, those of Standard Chartered and many interviews with market practitioners around the world, as well as the Atlantic Council group.
These developments affect many of our markets and businesses globally, from London, Luxembourg and New York to Canada (which recently declared its intent to be the North American RMB offshore hub). They impact sanctions, tax rules, legal standards and opportunities in mainland China, Hong Kong and the newly created free trade zones.
RMB Internationalization 2010 – 2015
Amongst the findings in the report: China’s economic coming of age continues to impact the global monetary and financial systems in unprecedented ways. In the area of currency internationalization, the RMB attained a “G7” status in global payment currencies, and the opportunities for investing internationally and domestically have increased at an exponential pace. In just the last five years, financial authorities and diplomats have faced a series of major developments, including:
- The creation of an offshore market with few capital account restrictions
- China will have to continue efforts to not only liberalize its capital account, but also to upgrade its crisis management, bankruptcy regimes and supervision of key gatekeepers like credit rating agencies, auditors and accountants. Capital market liberalization will have to account for frothy markets, just as will market supervision.
- Targeted investment schemes into the country, with specific country and individual quotas
- A series of mutual recognition programs, including the “Shanghai-Hong Kong Stock Connect” program, allowing investors to invest in one another’s onshore and offshore markets
These developments potentially carry a number of welcome advantages for the global economy and even international relations:
- Political frictions involving claims and counterclaims of “currency manipulation” could ease as RMB valuations are subject to greater market influence
- RMB internationalization, along with a more open capital account, portends a rebalancing of the global economy for more sustainable growth
- The internationalization process can help facilitate a more competitive, consumer-oriented economy
- Firms and investors in the United States and Europe will enjoy new means of diversifying their portfolio investments, as will China’s savers
- Earnings made in China and other “trapped cash” will be able to be repatriated abroad, just as RMB profits earned abroad will be able to be put to use