On 7 July 2015, the Australian Centre for Financial Studies (ACFS) welcomed Dr Guonan Ma to a roundtable on the topic of RMB internationalisation. Dr Ma is a fellow at the Fung Global Institute and non-resident fellow at Bruegel, with the discussion taking place in advance of the RMB Dialogue in Sydney and ANU China Update. The roundtable was facilitated by Amy Auster, ACFS Deputy Director and participants included academics and senior finance professionals who are active in the development of the RMB market, as well as staff from ACFS.
Dr Ma suggested that the Chinese government aims to liberalise the RMB with the objective of having the RMB “become a meaningful global currency” – implying that the RMB will be a globally used currency outside of China. The New Zealand dollar and the Singapore dollar are both internationally traded currencies, but Dr Ma suggested their use is quite small and the scale of China’s ambitions for its currency is significantly larger. While Dr Ma does not expect the RMB to be able to overtake the USD as the world’s most used currency in the foreseeable future, in ten years’ time the RMB can join the likes of the EUR, JPY and GBP as a major second-tier global currency.
Dr Ma explained that since 2009, when the Chinese government took the first step to permitting cross-border use of RMB, China’s motivation to promote the RMB has been centred on three aspects:
- An external commitment that will support domestic financial liberalisation;
- A channel to mitigate the imbalance of what has been high US dollar exposure; and
- An initiative to become a stakeholder of a global monetary system, particularly after the global financial crisis.
Since 2009, RMB internationalisation has gained global momentum. In the space of five years, use of the RMB has grown to now account for 1 per cent of world reserves. This is on par with Australia, and although the RMB is still thinly traded it is projected in 2020 to be behind only the USD, EUR and JPY. Dr Ma presented data showing that the RMB ranks in the top five currencies in global payment flows as at December 2014 (from 8th position 12 months prior).
Participants in the roundtable agreed that RMB internationalisation is becoming evident in the Australian market, with more inquiries coming through in relation to using the RMB for trade settlement. This interest has become increasingly evident over the past 12 months.
While presenting the merits of having a global currency, Dr Ma emphasised that the success of liberalisation will depend on the long-term growth prospects of China as well as its ability to forge a broad and deep financial market – with Dr Ma linking the need for a highly liquid and large Chinese bond market, particularly Chinese government bonds, as a necessity to anchor a global RMB. This is an area of reform that has significant attention from policymakers, particularly through the consolidation of what has been a rather fractured corporate bond and municipal bank debt market.
The continued development of the Chinese bond market and increased two-way capital flow into and out of China would suggest that China’s large current account surplus could reduce over time, along with China’s high saving rate. This suggests that the RMB – currently estimated by the IMF to be “fairly valued” – is also likely to experience greater trading volatility and perhaps depreciation over the medium term. A lower-value RMB would further support the internationalisation of the RMB as it would increase its attractiveness as a funding currency, as well as a currency for investment.
ACFS would like to thank Dr Guonan Ma for presenting at the roundtable and providing insights in what is becoming a major talking point amongst academics, corporates and financial markets.