The People’s Money

The People’s Money

Paola Subacchi

RIETI – BBL Seminar

Tokyo, 15 November 2016

Chatham House | International Economics

“China, the largest nation in the world, remains both an enigma and a potential factor in world stability”

2


Outline

• Why the renminbi?

• A trading nation without an international currency

• Building a market for the renminbi

• ‘Managed convertibility’

• The age of Chinese money?

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A trading nation without an international currency

• Restricted circulation outside China

• Rising, but still limited use in international trade

• An ‘immature creditor’

• The dollar trap

“Great nations have great currencies”

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Building a market for the renminbi

• How to create an international currency

• Two-track strategy:

- RMB-trade settlement scheme

- offshore market

• Constraints on capital account convertibility

• Beyond the offshore market

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Betting on the renminbi

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0 1234 56703

6666666600


USD

EURGBP

RMB

0

10

20

30

40

50

60

70

80

90

0 5 10 15 20 25 30 35 40 45 50

Val

ue

as %

of T

rad

e

Value as % of Payments

The RMB is 2nd most used currency in trade settlement

Source: SWIFT, 2015

GBP

JPY

RMB

CAD

SGD

CHF

HKD

AUD

THB

ZAR

INR0

1

2

3

4

5

6

7

8

9

10

0 2 4 6 8 10

See inset above

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Overview of the RMB offshore market

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Source: Federal Reserve Bank of San Francisco, 2015, Chatham House

Over 35 bilateral currency swap agreements, including with the ECB12 Offshore RMB centres plus Hong Kong

Toronto

LondonLuxembourg

Frankfurt

Paris Seoul

TaipeiHong Kong

Macau

Sydney

Singapore

Bangkok

Doha


864

317

225

131.8 122.1679.4

5020 1

0

100

200

300

400

500

600

700

800

900

1000

Hong Kong(Jan-16)

Taipei(Jan-16)

Singapore(Jan-16)

Macau(Apr-14)

Seoul (Aug-14)

LuxembourgSep-14)

London(Jan-16)

Paris(Jul-14)

Frankfurt(Mar-14)

Tot

al C

ust

omer

dep

osit

s (R

MB

bn

)Major financial centres in the RMB offshore market

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Asian RMB offshore centres/hubs

European RMB offshore centres/hubs

Source: Chatham House

Global stock of offshore RMB liquidity in different financial centres


London: RMB trade and trade finance

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• The UK is one of China’s most important trading partners in Europe.

• Total trade between the UK and China reached USD 83 billion 2014, ranked the second after Germany and accounted for 14% of total goods trade between China and the EU.

• The value of RMB trade finance business in London reached a high of about RMB 43 billion in 2013.

Source: Bourse Consult - City of London, 2015

0

5000

10000

15000

20000

25000

30000

2011 H1 2011 H2 2012 H1 2012 H2 2013 H1 2013 H2 2014 H1 2014 H2

Tra

de

fin

ance

in

Lon

don

(RM

B b

n)• Project finance may

be the next area of growth; In 2014, CIC estimated China could invest £105bn in UK infrastructure projects by 2025


The way forward: ‘managed convertibility’

• China is not ready for financial opening up

• reforming the banking and financial system will take long time

• ‘Managed convertibility’ is, and will continue to be the default mode

• a system of quotas – R-QFI etc

• free trade zones

• direct channels to China’s stock exchanges

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The age of Chinese money

• A regional or an international currency?

• The renminbi and the dollar

• The renminbi and the international monetary system

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Forthcoming book:

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Thank you

Chatham House | The Royal Institute of International Affairs

Documents

The People’s Money