There was never any doubt that the continued growth of China’s influence on the world stage would eventually lead the RMB to become a growing force in the global FX market. However, over the past 5 years, the pace at which the Chinese currency progressed to liberalization has surprised even the most hopeful of market participants.
The agenda Chinese authorities pursued five years ago to create a major offshore currency for trade, investment and reserve management purposes was certainly aggressive. Now, the RMB is supported by central and commercial banks in a host of major financial centers. International investment schemes have also opened the gates. According to SWIFT’s monthly RMB tracker, the RMB is already the fifth most active currency for global payments.
One of the most significant developments, some believe, has been the proliferation of offshore clearing centers, a process that requires the People’s Bank of China (PBoC) to officially designate a clearing bank for that center.
Progress may have been swift, but renminbi’s share of global FX turnover is still small in relative terms. According to the latest semi-annual survey by the Bank of England, the currency makes up less than 0.7% of trading in London.
Use of renminbi among central banks is less widespread than among commercial banks, investors and corporates, but some reserve managers are already understood to be including the currency in their reserve allocation.
This year China is expected to push ahead with the launch of CIPS, its long-awaited international payment system enabling standard cross-border clearing of renminbi among onshore and offshore participants. With a number of banks understood to be already testing the system, it is expected that CIPS will remove common processing challenges encountered when trading renminbi, placing it on a more level footing with other global currencies.
The full version of this article was featured in the 2015 edition of FXExchange Magazine.