RMB going global
Exhibit 1 The Gradual Revaluation of the RMB (1994–2010)
Peg to dollar
Gradually appreciating
Huge reserves
Biggest financier of government bonds
Growing confidence in world market
Second largest economy, (though not in per
capita terms)
Problem area:
Lack of convertibility
Capital control
2004 establishing ‘Offshore RMB Market’ in
Hong Kong, more and more trade handled in
RMB (RQFII* and RQFLP* scheme)
 Market size grows steadily, rules lessened.
 Used as settlement currency at cross border
trade Currency swaps with other economies: EU.
UK, Astralia, Turkey, etc. This Allows other
countries to finance their importers with RMB to
be used at trade settlement
 Chile, Tanzania, and Nigeria diversified their
reserves into RMB holding.
*Renminbi Qualified Foreign Institutional Investor scheme (RQFII)
**Renminbi Qualified Foreign Limited Partner Program (RQFLP),
Used in international transactions freely and
Stable in value
Credible monetary policy
Credit worthiness
US$ (60% held outside US), Euro€ (14% held
outside EU as of 2010), £, yen,
a) the size of the economy and the trade
b) the size of the financial market,
c) capital account openness, and
d) the stability of the economic and political
These attributes are necessary, but not
sufficient conditions for an international
The yuan is currently traded in specific
markets in specific ways
Exhibit 2 Evolution of Trading in the Chinese Renminbi
CNY-NDF market not important anymore
since 2010 due to CNH market development
The yuan is inevitably headed
a major global role
Exhibit 3 Necessary Medium for the Growth of the RMB
A no brainer?
the so-called “Dim Sum” bonds – bonds
denominated in RMB and issued in Hong
Kong - in 2007.
24 issues up to 2011. altogether 60 billion
RMB denominated debt certificate in total.
The yuan is rapidly developing along the
criteria for an international currency status
International Currency Status
The Yuan Goes Global:
Case Questions
How does the Chinese government limit the use of the
Chinese currency, the RMB, on the global currency
What are the differences between the RMB, the CNY, the
CNH, and the CNY-NDF?
Why was the McDonald’s bond issue so significant?
Will – if ever – the RMB become a truly global currency?
Case questions: answer
How does the Chinese government limit the use of
the Chinese currency, the RMB, on the global
currency markets?
▪ The Central bank of China is under the
guidance of the Polit bureau
▪ All trading inside china between the RMB and
foreign currencies, is conducted according to
Chinese regulations. License needed.
▪ On shore and off shore market not freely
Case questions: answer
What are the differences between the RMB, the CNY, the CNH, and the
▪ CNY. This is the trading of the Yuan or RMB in the onshore
market. This is a highly regulated market
▪ CNH. This is trading of the RMB in the Hong Kong market –
“offshore”. This market, however, is showing signs of
increasing regulatory release contributing to rapidly
increasing currency exchange volumes.
▪ CNY-NDF. NDF: Non deliverable forward contracts. These
are forward contracts, traded in the Hong Kong offshore
market. The non-deliverable forwards are not important as of
now, due to the rule changes that RMB settlement is allowed
as of 2010.
3. Why was the McDonald’s bond
issue so significant?
▪ The McDonald's bond was the first issue denominated
in RMB by a non-financial non-Chinese firm in the
global market at the Dim Sum Bond Market
▪ Although small in size, roughly $30 million, the issue
has significant signaling effect: for companies to both
operate and fund their business growth in Chinese
▪ The McDonald’s issuance was followed in November
2010 by a larger $150 million RMB-bond by Caterpillar
Corporation (US), and in January 2011 by a CNY 500
million ($75.9 million) issuance by the World Bank.
4. Will the RMB become a truly
global currency?
▪ The primary impediment to the RMB’s growth as a global
currency are the capital market restrictions, on shore off
shore differences, and residents and non residents
▪ The Chinese government has made it very clear that it has
no ambition to become an international currency,
particularly as a reserve currency.
▪ Etc.
The use of RMB in trade is limited to small
portion of the total trade with China.
Countries who accepted RMB as payment
intend to use RMB to hedge their RMB
Not for ‘store of value’ (reserve currency)
purposes per se.

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